Aiding Higher Education with Export Expansion in the Developing World

Abstract

AbstractThe recent change towards advanced technologies favors skill-intensive labor, motivating workers to upgrade their educational achievements to the tertiary level. However, workers in many developing countries cannot exploit the opportunity for premium wages in skill-intensive sectors owing to insufficient education facilities and resources. In such contexts, aid to education provides a capacity-building tool to eliminate the insufficiency but is often unsuccessful. Using theories of trade and human capital, this study argues that complementarity between education aid and skill-intensive manufactured exports creates a synergistic effect in upgrading educational achievements by rectifying both structural and incentive constraints. Through extensive data analysis, the result demonstrates that skill-intensive exports enhance aid's effectiveness in increasing tertiary school enrollment, whereas neither exports nor aid alone significantly affect enrollment. It further shows that the aid–export complementarity is less relevant in low-income countries, whereas skill-intensive exports alone promote education upgrading in developed countries via the Stolper–Samuelson effect.