Economic Freedom, Human Rights, and the Returns toHuman Capital: An Evaluation of the SchultzHypothesis

T.W. Schultz (1975) proposed that returns to human capital were highest in economicenvironments where technology, price or production shocks were common and managerial skillsto adapt resource allocations to those shocks were most in need. We hypothesize that variationin returns to human capital across developing countries can be explained in part by governmentinstitutions that blunt the magnitude of those shocks or that limit individual abilities to respondto those shocks. Using estimated returns to schooling and experience from 122 householdsurveys from 86 developing countries, we demonstrate a strong positive correlation betweeneconomic freedom and returns to human capital.[...]