Lucas (1988) held the view that “public spending on education promotes human capital, which in turn contributes to economic growth” . This paper will use three groups of countries with different characteristics to explore the relationships between education and economic growth.
Education is important for individual. Educated individuals are more likely to get better jobs, higher earnings. Education is also vital from a social perspective. Investment in education, by raising the skill level of the labor force, improves productivity. Education leadsbetter health for individuals and healthier individuals are more productive. Higher levels of educations lead to lower fertility, which has a generational impact on economic development.
Education and Economic Growth
Although theoretically there seems to be a link between investment in education and economic growth, this does not hold for all countries.
Figure 1 shows mean years of schooling for four East European countries, 1990-2015. These countries do well in terms of education, with a mean of 12.2years,similar to highly developed countries (as defined by the United Nations Human Development Report) in 2015. They perform less well on GDP per capita.
As figure 2 illustrates , in 1990, GDP per capita of these countries waswell belowaverage global GDP per capita.What explains the “high education but low GDP per capita” phenomenon in Eastern European countries?Their trade policies are less open, partly because they are landlocked countries. Also, they were countries within, or satellites of, the former Soviet Unionwhich collapsed in the early 1990s.
The relationship is completely differentin Middle East countries. As figure 3 shows, mean years of schooling was about 5.5 in 1990, below the world average. Butthey performed very well in terms of GDP per capita (shown in figure 4 ) which was $73,637 ($PPP) in 2015, almost double that of highly developed countries ($39,600). In contrast, mean years of schooling was about 9,three years below that of the highly developed countries (12.2).
These are oil-producing counties, which leads to high levels of GDP. But building an economy on one natural resource is problematic, since the price of the resource will fluctuate, and will eventually be used up.
The East Asian Tigers witnessed rapid growth from 1961-1990. Theyfocused on investment in human capitaland have continued to thrivebeing among the top 20 countries in terms of HDI . The Asian Tigers are still developing rapidly compared to other highly developed countries. Their development plan rested on investment in human capital, particularly technological and scientific education. Today, average years of schooling of the four East Asian Tigers is 12, close to that in highly developed countries.
As an emerging star in East Asia, China, the world’s second largest economy, is attracting global attention. Are the Asian Tigers a good model for China?
During the past three decades, Chinaexperienced significant economic development. Its average annual GDP growth rate was9.6%, compared to 4.9% for the Asian Tigers.China has also witnessed a big increase in GDP per capita,from 194 (US$) in 1980 to 8,069 (US$) in 2015.
One reason for this is the early attention the China paid to investment in human capital. In the 1950s, China implemented an illiteracy-elimination movement. In 1986 it enacted a nine-year compulsory education project. Mean years of education increased by about 1.1 years nationwide. This emphasis on education continues today. According to World Bank data, China’s educational expendituresincreased from 1.8% of GDP in 1995 to 4% in 2016.As a result, mean years of education increased 1.9 years, 1995-2015. The contribution of education to HDI growth increased from 24.3% during 1980-1990 to 44.2% during 2000-2010.
Education played an important role in the economic growth of China, as it did for the Asian Tigers. However, China’s GDP per capita is still relatively low. This is perhaps because of the low quality of education in China. Improving educational quality, and eliminating the enrollment gap between urban and rural areas,is important for future development.
Clearly, education is a necessary but not sufficient condition for sustainable economic growth.Overall, economic policies that do not rely solely on natural resources, that emphasize openness to trade, and that promote investment in education lead to more sustainable economic growth.
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Biswajit Maitra and C.K. Mukhopadhyay. 2012. Public Spending on Education, Health care and Economic Growth in Selected Countries of Asia and the Pacific
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China National Human Development Report 2016: Social Innovation for Inclusive Human Development.UNHR.
David E. Bloom. 2007. Education, Health, and Development.