Importance of Human Capital in Export Performance

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Importance of Human Capital in Export Performance

Postby Anup V » Fri Jul 13, 2012 12:41 am

The purpose of this thesis is to analyze the effect of human capital in Swedish export. Human capital is here expressed as the number of employees in the private sector per municipality with university education of at least three years. Two regression models were tested with aggregated export value/municipality and export value per kilo/municipality as dependent variables. Human capital as well as the total accessibility to R&D was assumed to have a positive impact on the Swedish export performance. During the last decades many economists have attached great importance to education, knowledge and investments in R&D. Sweden is in general abundant in human capital and have also several world leading companies characterized by knowledge intensive production and export.

According to the Product Life Cycle Theory, Sweden should focus on the first phase that requires high input of human capital and product competition to maintain the competitiveness in the international market. The results indicate as expected that the access to human capital as well as accessibility value per kilo. The assumption about human capital being even more important in high value export could not be confirmed by the results. Innovation promoting investments together with continuous efforts to improve innovation nets and interaction possibilities are presumed to be important factors for Swedish competitiveness also in the future.

The increased importance of human capital is most evident in the well developed economies where the structure has undergone considerable changes since the 1980’s. According to Romer (1990) the output per worker increase that characterizes the western world during the last decades is explained by both technological progress and a more effective labor force. Some economists stress that a well functioning higher educational system is one of the most important elements of the modern economies. Not only because of the development and growth in the long run but also because of the necessity of being competitive in the globalized world and international market of today

Human capital is an important factor when it comes to adopting to new techniques and also for new innovations which are necessary in the export orientated nodes of Sweden to preserve the advantages and to be competitive in today’s global markets. Sweden has in general a high number of educated workers but the differences between both sectors and municipalities are significant.

Human Capital and International Trade

Pioneers like Schultz and Becker developed the Human Capital Theory by emphasizing the importance of human capital in economic growth in the early sixties; it has been a frequently investigated field of research ever since. Schultz refers to education as an investment in man since the consequences (referred to as a form of capital, and therefore called human capital) becomes inseparable from the individual receiving it (1960). His work can be called a first step to an analysis of human capital and its impact on economic growth. Gary Becker was the first one to analyze the rate of return of investment in human capital from a general viewpoint (1993). Becker has realized a multitude of studies including human capital, which has made him the economist strongest associated with the concept.

When it comes to technological improvements and innovation, import plays an important role in the development process. The import stimulates the incentives to create new products and to improve the already existing ones. Within complex and differentiated product areas one can often find intra-industry trade where the imported and exported products are from the same category (Johansson 1993). Paul R. Krugman states in his “Rethinking international trade” (1994) that international trade stimulates innovation and yields a higher rate of return on the innovations than what would have been possible for any innovating economy alone. He mentions the basic Shumpeterian framework describing firms’ willingness to invest in knowledge, which in turn allows them to establish a temporary monopoly position until the knowledge becomes public. Meanwhile, the technology continues to develop by the innovators, creating new monopolies, and so the economy continues evolve. Barro (2001) emphasizes the importance of workers with high educational level as an important factor when adapting to new advanced techniques from leading countries. He claims this form of human capital (especially at the secondary and higher levels of education) to be complementary with the new technologies and therefore significant in the “diffusion of technology”.

Author: Therese Gerdne, Doctor of Philosophy, September 2005, HÖGSKOLAN I JÖNKÖPING

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