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

Recent studies show that trade liberalization increases skilled wage premiums in developing countries. This result suggests globalization bene…ts skilled workers more than unskilled workers, increasing inequality. However, if human capital investment responds to new global opportunities, this e¤ect may be mitigated. I study how the impact of globalization varies across Indian districts with di¤erent costs of skill acquisition. I focus on the relative cost of learning English versus Hindi, since English is useful 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 relatively easier to learn English bene…t more from globalization: they experience greater growth in both information technology jobs and school enrollment. Consistent with a larger human capital response, they experience smaller increases in skilled wage premiums. Keywords: education, India, outsourcing. JEL Codes: O, I, F. Correspondence: [email protected]. I am grateful to Shawn Cole, David Cutler, Esther Du‡o, Caroline Hoxby, Lakshmi Iyer, Patrick McEwan, Asim Khwaja, Michael Kremer, Sendhil Mullainathan and Rohini Pande for their advice and comments, Aimee Chin, Petia Topalova and David Clingingsmith for help with the data and seminars participants at various institutions. I thank the Warburg Funds Research Grants at Harvard University for …nancial support to collect the data and the Dissertation Internship at the Board of Governors of the Federal Reserve System for …nancial support. The views expressed here are mine and do not necessarily re‡ect those of any of these institutions. In addition, I thank Elias Bruegmann, Filipe Campante, Davin Chor, Quoc-Anh Do, Eyal Dvir, Alex Gelber, Li Han, C. Kirabo Jackson, Michael Katz, Katharine Sims, Erin Strumpf and Daniel Tortorice for helpful conversations. All errors are mine.