Günther G. Schulze: Coxhead and Shrestha raise an important point. Their contribution casts doubt on the notion that globalization will always improve incentives to invest in formal education. Instead, Coxhead and Shrestha argue that in the case of Vietnam, globalization has had the opposite effect: In districts in which FDI created significant employment, school attendance of adolescents was lower. This suggests that the creation of employment and the increase in wages for unskilled labor through FDI has raised opportunity costs of education and the return to education has not increased to the same extent, thereby shifting the optimal investment decision toward lower schooling. This is reason for concern as long-term development prospects may be compromised because of insufficient human capital formation.
From a theoretical perspective, the effect of globalization on education is ambiguous: In a Heckscher-Ohlin setting trade liberalization should increase the return of the abundant factor—unskilled labor in the...