Human Capital Response to Globalization: Education and Information Technology in India

Abstract

Recent studies have shown that trade liberalization increases skilled wage premiums in developing countries. This result suggests globalization may benefit elite skilled workers relatively more than poor unskilled workers, increasing inequality. This effect may be mitigated, however, if human capital investment responds to new global opportunities. A key question is whether a country with a more elastic human capital supply is better positioned to benefit from globalization. I study how the impact of globalization varies across Indian districts with different costs of skill acquisition. I focus on the cost of learning English, a relevant qualification for high-skilled export jobs. Linguistic diversity in India compels individuals to learn either English or Hindi as a lingua franca. Some districts have lower relative costs of learning English due to linguistic predispositions and psychic costs associated with past nationalistic pressure to adopt Hindi. I demonstrate that districts where it is easier to learn English benefited more from globalization: they experienced greater growth in both information technology jobs and school enrollment. Consistent with this human capital response, they experienced smaller increases in skilled wage premiums.

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