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Cognitive Skills, Openness and Growth*
Author(s) -
BASU PARANTAP,
BHATTARAI KESHAB
Publication year - 2012
Publication title -
economic record
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.365
H-Index - 42
eISSN - 1475-4932
pISSN - 0013-0249
DOI - 10.1111/j.1475-4932.2011.00764.x
Subject(s) - openness to experience , human capital , economics , investment (military) , productivity , endogenous growth theory , open economy , gross domestic product , physical capital , product (mathematics) , international economics , international trade , monetary economics , macroeconomics , exchange rate , economic growth , psychology , social psychology , geometry , mathematics , politics , political science , law
A significant positive relationship exists between the ratios of trade and educational spending to gross domestic product, implying that countries which are more open on the trade front also spend more on education. An open economy endogenous growth model with human capital is developed to understand this stylised fact. The model predicts that countries with greater cognitive skills spend more on education, and grow faster. These countries open up on the trade front to finance importation of raw materials for investment goods production, which becomes scarce due to the diversion of resources to education. The model highlights the importance of the productivity of human capital or cognitive skill as an important economic fundamental determining the cross‐country correlation between growth, trade share and education share.