The Effects of Female Human Capital on Economic Growth in Scandinavia: An Instrumental Variables Regression Analysis

Elaina Hammeken

Student thesis: Master thesis

Abstract

Executive Summary: Following the notion of knowledge throughout the history of economic thought, knowledge was rather neglected, yet intricately entwined in the productive powers of labor, until Gary Becker’s introduction of the productivity augmenting effects of human capital in the 1960s. While the effects from human capital as another variable in the production function led to insignificant results, theoretically, Benhabib and Speigel demonstrated human capital’s ability to attract physical capital and increase a country’s total factor productivity. Furthermore, Robert Barro empirically found positive and significant effects from male secondary and higher education; yet, the effects of female education were limited to capital deepening. As Bils and Klenow criticize the significance of human capital in economic growth due to the presence of simultaneous causality and omitted variables bias, Wolff further critiques the poor quality of education data, incomparability between education systems and that perhaps only certain forms of schooling have significant effects on economic growth. Barro integrates higher quality education data to incorporate international exam scores, finding a much stronger effect on growth, yet the effects of female human capital remain negative and insignificant. Disappointed with the negative and insignificant effects from female human capital on economic growth, Barro’s proposes that this may be due to a majority of countries underutilizing educated females in the workforce. By limiting our sample size to countries with comparable education systems and equal opportunities for women, the purpose of this paper is to investigate whether or not the negative and insignificant effects from female human capital on economic growth holds in countries with some of the lowest gender gaps in the world. As occupational opportunities converge, the prevailing hypothesis is that educated women should have positive and significant effects on economic growth, at a similar magnitude to men. Limiting our sample size to four of the top ten countries with the lowest gender gaps in the world and comparable education, we focus on Denmark, Finland, Norway and Sweden. After transforming our data for stationarity and confirming the presence of simultaneous causality, we panel our data and estimate a two-stage least squares instrumental variables regression to remove endogeneity. With our results holding to robustness through country fixed effects and in line with Barro’s previous results, we build upon the previous literature to conclude that even in countries with some of the smallest gender gaps in the world, women may be underutilized in the workforce where we highlight potential economic interpretations ranging from limitations in our IV model to cultural implications and opportunity costs.

EducationsMSc in Applied Economics and Finance, (Graduate Programme) Final Thesis
LanguageEnglish
Publication date2014
Number of pages79