Abstract: Based on the theoretical model established on the basis of human capital and real exchange rate, this paper uses the resent five years’ data across 135 countries all around the world to re-check the relationship between human capital and real exchange rate with the method of Driscoll and Kraay (1998) which has characteristics of spatial section correlation. The results indicate that there exists the U-shaped relationship between human capital and real exchange rate, i.e., at first the effect of human capital on real exchange rate is negative, and then it turns to positive when human capital exceeds the critical value. The endogenous Barca effect is negative, and the effects of age structure and government consumption on real exchange rate is ambiguous. Therefore, to study the effect of human capital on real exchange rate has to go deep into its inside structure and study the factor endowment effect and the endogenous Barca effect, which offers important implications for the study of real exchange rate.

Key words: human capital; real exchange rate; correlated between the groups; cross section self-correlation; factor endowment effect; endogenous Barca effect