Inside the Black Box of Regional Development—Human Capital, the Creative Class and Tolerance

Abstract:     
While there is a general consensus on the importance of human capital to regional development, debate has emerged around two key issues. The first involves the efficacy of educational versus occupational measures (i.e. the creative class) of human capital, while the second revolves around the factors that affect its distribution. We use structural equation models and path analysis to examine the relations from these two alternative measures of human capital and regional income and wages, and also to isolate the relations of tolerance, consumer service amenities and the university on its distribution. We find that human capital and the creative class affect regional development through different channels. The creative class outperforms conventional educational attainment measures in accounting for regional labor productivity measured as wages, while conventional human capital does better in accounting for regional income. We find that tolerance is significantly associated with both human capital and the creative class as well as with wages and income. We also find that the cultural economy has both direct and indirect relationships to regional development and impacts both production and consumption.

Keywords: human capital, creative class, tolerance, wages, income, regional development

JEL Classification: O30, R10, R20, J24

Accepted Paper Series