Human capital and border effect: The case of Minho River area

Abstract

This study investigates the dynamics of human capital in borderlands, focusing on the case of the Minho River border between Spain and Portugal. We examine how this capital influences company sales in these culturally and economically intertwined regions. The problem is critical due to the unique nature of borderlands in global trade and cultural exchange. Our novel approach uses hierarchical linear models for comparative analysis between municipalities in the border regions and those in the wider province (NUT III UE). This allows a deeper understanding of the localized effects of human capital. Empirical results reveal significant country and border effects on company sales in the examined case. Spanish companies face disadvantages compared to Portuguese ones, likely due to lower industrial land costs, cheaper labor, and different tax systems in Portugal. The analysis indicates a positive border effect on sales, attributed to geographical and cultural proximity, outweighing the disadvantages of smaller firm size and lower agglomeration in border territories. This research not only highlights the specific context of the Minho River borderlands but also offers broader insights into the role of human capital in regional economic development. This case study provides a foundation for future research and policy formulation in similar border regions worldwide, emphasizing the significance of human capital and its varied impact across different geographical and political contexts