late 80s, macroeconomists attention was on the effects of government policies
on the long-term rate of economic growth. The difference between prosperity and
poverty for a country would then depend on how fast it grows on the long run.
Those policies are all activities that matter for the economic performance .
The government are strongly and directly involved in the financing and
provision of schooling at various levels. Hence, public policies in these areas
have major effects on a country’s accumulation of human capital. This article
reviews the role of education in promoting economic growth at first and then the
impact of the economic growth on education. It studies whether there is a
relation between the two and if so, whether it is correlation or causal one.The
analysis differentiates between the quantity of education – measured by years
of attainment at certain levels- and the quality – judged by scores on
international examinations -. The empirical analysis reveals that there is a
long run relationship between economic growth and education, which suggests
that these variables are necessary for each other.
It is not
as quite as simple as “more students equals higher production”. The role of
improved schooling is nowadays controversial because expansion of school
attainment has not guaranteed improved economic conditions. There are many
factors that should be taken into consideration when investing in education.
other hand, we will discuss how economic growth will affect education on its
turn. Achieving sustainable economic development , taking into account the
economic growth, would be much more difficult ( focusing on education ). We
will show the importance of the sustainable development goal number 4 launched
by the leaders of 193 countries that commits to “Ensure inclusive and
equitable quality education and promote lifelong learning opportunities for all”
by 2030. This goal will be the focus of the High-Level Political Forum in 2019
in the global objective of empowering people and ensuring inclusiveness and
v We are relying
on the spending approach assuming that the other side of the spending coin is
income and what one person spends is somebody else’s income.
A country’s GDP is a measure of consumer spending (C) plus business
investment (I) and government spending (G) as well as its net exports, which is
exports minus imports (X-M).
GDP is a method of measuring output with constant-price approach to
remove the effect of market price’s fluctuations. In other words, changes in
volume would be tracked independently of the price of the output in the current
year ( using a base year ). It’s yearly increase in percentage terms would
reflect the economic growth that a country has achieved.
development is the development that meets the needs of the present population
without harming and compromising the ability of future generations in terms of
meeting their needs.
v Productivity is
a measure of efficiency. It measures the volume of the production per unit of
input. Inputs can include labor, capital, energy, materials, purchased services and the
interactions between them.
v Human capital
is the combination of knowledge, habits, social and personality attributes
(creativity) that builds the ability to perform and produce economic value.
This knowledge and these skills people obtain through education, experience,
Does investing in education affects economic growth ?
in education comes in the form of important government spending. It could
follow different types of policies. It can be by increasing number of schools
providing equal chances for everyone, providing free education, insuring high
quality of teachers, providing the chance for everyone to pursue higher
Investing in education increases human capital
It is about enhancing the degree to which
schooling facilitates the acquisition of professional skills and fosters
cognitive skills that foster development.
It is about increasing the innovative capacity
of the economy – knowledge of new technologies, products, and processes that
It is about facilitating the diffusion and
transmission of knowledge needed to
understand and process new information and to implement new technologies
devised by others, again promoting growth.
Faster integration in the economically
active population :
fact, youth would obtain learning that builds their productive human capital. It
would help them find more easily their first job. This , as 1st impact would decrease
unemployment rates. So they participate faster in the supply of output leading
to higher growth rates. By participating early in the economic value of the country
they have higher chance to enhance their social mobility ( which is the
movement between social strata in a society ).
• The United states has outperformed
European countries because of its “exceptionalism” in education compared
under-investment of the latter in human capital. Latin American countries were
unable to rise from middle – to high- income status over the last 50 years
because of its poor educational performance.
The United states produces the double of what
it did produce in 1982 with two-third less workers.
• Taiwan, Singapore and South Korea
attained high-income status because of education.
Higher Productivity :
education imply higher labor productivity as in one unit of input ( one person
) is able to produce more output than usual. Productivity on its turn has a
great impact on economic growth since it it affects the production . Production
function = F ( K, L, E ) with L being Labor supply, education, motivation etc.
Adapting to advances :
is a transfer of knowledge necessary as a mean of spreading knowledge needed to
invent new ideas and to make use of new technologies. Investment in education
leads to the creation of new jobs.
Favorable environment for work :
educated, cultivated people tend to adopt a citizenship behavior based on the
increase of their level of awareness. So they vote at higher rates, engage in
the community’s activities and commit fewer crimes. This helps building a more
favorable environment for businesses to prosper and attracts foreign investors
leading to a growth in the economy.
Higher availability :
Highly educated, cultivated people tend to
adopt healthier lifestyles which protects them from getting sick very
frequently. This way the number of hours sacrificed for medical reasons would
decrease and be filled by more hours dedicated to production or on vacations
which translates higher consumption. In both ways, the economy will prosper end
enjoy higher growth.
Reasonable wise population growth :
education has a correlated and causal relationship with the average life
expectancy since people especially women have more awareness for nutrition,
maternal health and child survival.This would result in healthier generations.
It can be
seen from another perspective that is people engaged in education would
sometimes delay birth and decreases the family size which protects the country
from over population avoiding any type of possible shortages to meet the higher
Less work with higher productivity :
educated people tend to multitask. They are able to finish a task easily and
rapidly than before which allows them to do more. It is not anymore about time
spent on working but on the quality of effort and thinking. The world’s most
productive countries work less ( and vice versa) (Appendix A)
• The increase of human capital
explain about 20% of US Productivity growth from 1950 to 2007 ( economists
The highest level of education a person have
completed in the US is growing and it contributes to 0.6% of growth in
productivity every year.
Sometimes these investments are not fruitful.
Higher costs, Higher taxes :
education requires high costs since the cost of maintaining universities is
increasing dramatically. These costs are added to many other programs that
governments supports which leads them to increase taxes to find money to pay
for such effort. But people always resist this tendency making it difficult for
the government to increase its spending.
Increasing Unemployment :
Increasing the spending on education has
increased the supply of skilled workers which has outpaced demand, leading to
How does economic growth affects education ?
faces economic growth (whether negative or positive) which affects it in many
aspects. It is developing more and more and the whole process has to adapt
including labor force and their motivation to receive education and the costs
dedicated to education.
growth we observe the increase of the knowledge-based economy which requires
education and skills to secure it in the future. With failure in emphasizing
investments in education systems, countries may lose opportunities in world
trade, come across higher unemployment rates, more inequality which contributes
to slowing growth and the wheel spins again and again.
Entrepreneurial thinking :
economic growth, people are watching businesses prosper, new technologies
appear and the appearance of a new world characterized by innovative thinking
and globalization. Countries get more open to each other and people recognize
that they have a more favorable environment to think of launching a business or
to diversify their revenue portfolio. They , as a result, would be more eager
to learn and to enhance their capabilities.
Conflicting purposes :
economic growth , some countries face the dominance of wealthy parts of the
society that eventually affect how political parties would distribute revenue.
• Pakistan has the world’s
second-largest out-of-school population. This could be explained by the focus
of politicians on facilitating tax evasion by the wealthy rather than enhancing
learning opportunities for the poor. This thinking was adopted by not only one
but successive governments which lead to low productivity growth of 3.09% for
the period 2011-2020 ( forecasted)
Education as a mean not an end :
economic growth, governments recognize the importance of education in the
production of more economic value. So they shift their interest .While
investing in education , governments neglect the main purpose which is helping
people acquire skills and knowledge needed to create better impact on the
society and to exploit opportunities equitably between all members. They shift
their objectives to a material phase and outcomes, as a result, will not be
sustainable. Its preoccupation with money and possessions would affect young
people’s thinking. People would shift their purpose as well from getting
informed, cultivated and strengthening their moral character to getting jobs
and money. This would harm the economy more than it would have helped it.
• British government shifted the
title of the department concerned with education from department of Education
and Science to department of Education and Employment in 1992 to Department of
Business, Innovation and Skills.
• According to The American Freshman:
National Norms Fall 2012 survey, in the United States in 2012 , “Getting a
better job” was cited as an “important” reason for attending college by
first-year university students in 88% of the cases. “Being very well off
financially” was listed in 81% as an “essential” or “very important” goal.
Technology harms labor :
economic growth we observe a lot of technological innovations mainly automation
and the excessive use of robots. These technologies allow machines to do the
work that people used to do. This would affect the employment of workers whose
skills are substitutable by robots and lowers the wage that firms have to set.
So a high level of education is required to match this transition process since
there are job opportunities and higher wages in non-routine sectors.
• 100 years ago, the largest part of
American labor force worked in farms because the production of especially food
was very labor intensive. Now, with new farming technology , productivity
increased by producing more with less input which is the almost disappearance
of the labor force ( less than 2% are working in the agriculture sector.) (appendixB)
Side effect of technological revolutions :
Economic growth is often associated with
advances in technology. These advances might not only impact productivity
slightly but it can even reduce it. The newest innovations have great social
value like Twitter and Facebook. They distract workers from their jobs which
reduces labor productivity. They also distract youth from their dedication to
study and work.
factors should be taken into consideration so that investing in education would
improve economic growth ?
governments, macro-economic management should be aligned with the expansion of
education otherwise it would be a prescription for lowering productivity,
increasing unemployment and sluggishness of growth as a result.
In order to obtain the best outcomes out of
an investment in education, governments should take into consideration that education
should be enhanced on the three phases: Quantity , quality and cost efficiency.
When graduation rates rise, economic benefits may fail to materialize if
quality was slipped. The most important key in education is how well students
develop cognitive as well as soft skills such as time management, critical
thinking, leadership and problem-solving. Number of years spent in education or
of college degrees do not reflect the real outcome. For any given level of
expenditure , the output achieved will depend on the input mix. And
consequently, this implies that in order to explain education outcomes, we must
rely on information about specific inputs.
determinants of learning outcomes :
Skills learned ( achievement )
• One step up the standard deviation
score on the OECD’s Program for International Student Assessment is associated
with a 2% increase in a country’s long-run per capita growth rate
Years of schooling
School and teacher characteristics ( quality )
School inputs under the control of households (
such as attendance to school, effort and homework doing, providing school
supplies .. )
directly drives us to understanding that focusing on institutions is
fundamental to improve educational quality. An education system is built around
educators. Teachers must be a priority in an education enhancement program by
providing them strong incentives, effective training and dependable support
systems so that they deliver quality learning.
should also be aware of the importance
of education from another aspect. Not only boosting the productivity would help
the economy. A stagnant economy and lack of opportunity are undoubtedly
problems, but so are low voting rates, civic apathy, widespread disregard for
ethical standards, and indifference to art, music, literature, and ideas. If
our leaders regard education merely as a means to jobs and money, no one should
be surprised if young people eventually come to think of it that way, too.
sectors, available skills and education systems and networks of companies are
all important factors. So before making a move, the related parties should
analyze both external and internal environment to assess all weaknesses and
opportunities and threats and make an investment and a strategy plan that would
rely on the country’s strength to overcome all possible problems or obstacles. So,
they should not only think about supplying education but it must know where the
possibilities for its economy to specialize and develop to know how the
economic development would take place.Besides, they should prepare vacant job positions for the
new generations. Investing in human capital would develop income only if people
will find jobs and there is something that’s actually driving the development.
The role of
education in economic growth cannot fix quickly slow growth but it is without
doubt essential to achieve and mainly sustain economic development and
transformation without advances in education.
must commit more domestic funds to education. They should consider efficient
education spending, not just additional resources. The most important objective
of education is preparing young people to be more active and informed change
It is not
about the quantitative aspect but especially the qualitative one. (Appendix
D) These data about Canada reflects that there is a positive
correlation between higher quality of education ( expressed in Math achievement
) and GDP growth.But they deny any correlation between the quantity of
education ( expressed in Mean of years of education of women and men between
the age of 15 and 24) and GDP growth.
It is also better
to put money into primary education is much more important than higher education
because the same amount of money could reach many more people.
strong evidence that cognitive skills of people are powerfully related to
long-run economic growth rather than mere school attainment. We proved that
there is a strong robust relationship between skills and growth. Skills
together with the quality of economic institutions would lead to growth on the
long-run but it also requires patience.
These scatter Plots shows the relation between the enhancement of quality of
education ( Mean PISA score ) and quantity of education ( Mean years of
schooling ) with investment in education ( education expenditure as a share of
positively correlated but this type of
correlation does not imply causation. There is a notable weighty dispersion
away from the trend line which means
that there is substantial variation in outcomes that is not captured by
differences in expenditure.
How is sustainable
growth reached in education ?
mainly the Sustainable Development Goal number 4 from the 2030 agenda. In Sep. 2015, the leaders of 193 countries
agreed to achieve the SDGs by 2030.
SDG 4 aims
to “Ensure inclusive and equitable quality education and promote lifelong
learning opportunities for all”
to “provide inclusive and equitable quality education at all levels –
early childhood, primary, secondary, tertiary, technical and vocational
training”. All people, irrespective of sex, age, race, ethnicity, and persons
with disabilities, migrants, indigenous peoples, children and youth, especially
those in vulnerable situations, should have access to life-long learning
opportunities that help them acquire the knowledge and skills needed to exploit
opportunities and to participate fully in society.”
basically governments would strive to provide children and youth with a
nurturing environment for the full realization of their rights and capabilities
in order to reap the demographic dividend through safe schools and cohesive
communities and families.
governments to work on sustainability, it will need professionals covering all
sectors to ensure future success. They could be teachers, professors,
engineers, entrepreneurs or doctors. In order to produce them, education is
It is about
thinking of future and present generations together.
Ensuring gender equality in terms of completing
primary and secondary education
Providing Free and quality education
Ensuring gender equality regarding access to
early childhood development, care and pre-primary education
Ensuring equal access to technical, vocational
and tertiary education (including university)
Providing vulnerable people (with disabilities,
indigenous peoples …) with access to all levels of education
All youth should achieve literacy and numeracy.
Build and improve education facilities
(adaptable for disability, safe, inclusive …)
Expanding the number of scholarships
opportunities to both developed and developing countries.
Provide more qualified teachers.