Education and Economic Growth in Developing Countries

Relationship between Education and Economic Growth in Developing Countries

A new study vindicates the popular belief that human capital formation is crucial for a country’s economic development. Improved education is linked to higher individual income and it is a necessary precondition for sustained economic growth (Pawell 2011). Enhanced secondary education more directly improves the economic development compared to universal primary education. Therefore, the present concentration on Millennium Development Goals, relating to universal primary education, is significant but not sufficient. The universal primary education needs to be supplemented with making secondary education accessible to larger population groups in developing countries.

It is only through more accessible secondary education and universal primary education that developing countries will be able to achieve the human capital needed to accelerate their economic development (Pawell 2011). For the industrialized countries, tertiary education may be more important for fuelling economic growth. International policymakers should make improving education their priority as this will help to enhance governance and lessen corruption in developing countries.

New Research Findings

Because of data deficiencies, earlier study findings indicated that there was no relationship between the level of education and economic growth. In the new research, the investigators reconstructed educational attainment distribution by age and gender for 120 countries in the period of 1970-2000. The benefit of these data in comparison to others is that they were more detailed (Pawell 2011).

It is a popular belief that education has a positive impact on economic growth, but there have been no findings to support this belief. At the individual level, more education attainment is linked to higher income (Waugh 2011). At the macroeconomic level, however, the relationship between education and economic growth has always been unclear. However, a recent research, conducted by the International Institute for Applied Systems Analysis (IIASA) in collaboration with Vienna Institute of Demography, has shed light on the issue. The study was able to unravel the puzzle between education and economic growth by utilizing a new dataset on education achievements that were categorized by age and gender.

The new approach gives a clear proof of constantly positive and statistically significant impact of education on the countries’ economic development (Pawell 2011). A thorough analysis of the data offers policymakers evidence that education is necessary for achieving long-term economic growth.

Putting Education into Perspective through Alternative Growth Scenarios

Investigators from IIASA propose four scenarios for illustrating the effect of four different educational attainment distributions on annual GDP growth.

Scenario 1

Scenario 1 illustrates the case of a country with a young workforce (70 per cent of the workforce is aged between 15 and 40 years while the rest 30 per cent of working people are aged between 40 and 65 years), a low entry level income and rate of investment. The educational structure is as follows: half of the population has no formal education, 40 per cent attended primary education, and at least 10 percent finished secondary school but have no tertiary education. The educational categories employed in the analysis are mutually exclusive and they include: no education, primary, secondary, and tertiary education. This generally reflects the educational structure of Latin America and African countries where most developing countries are located. The study sample applied by IIASA covered countries like Guatemala, Honduras, Kenya, Rwanda, and Uganda. The countries depicted by this scenario normally have slow economic growth.

Scenario 2

Scenario 2 relates to a country that has already attained the second Millennium Development Goal a long time ago. This means that the country has achieved universal primary education so that even the originally illiterate half of the adult population has now achieved primary education. This scenario will be linked to higher long-term growth rate of GDP.

Scenario 3

Scenario 3 regards a possible MDG effort relating to promoting access to secondary education so that over 50 per cent of the population attains secondary education in addition to primary schooling. The scenario indicates that investment in secondary schooling has a huge impact on economic growth that may even overcome the effect of the universal primary education scenario. The scenario of elitist education, where half of the country’s population has no formal schooling, is better than the baseline, as well as than the case of universal primary education with 10 per cent secondary schooling and no tertiary education.

Scenario 4

Scenario 4 portrays the case of India, which depicts an improvement on the baseline scenario. In this case, half of the population has no formal education, 5 per cent has tertiary, 15 per cent secondary, and 30 per cent primary schooling. However, the scenario cannot achieve the economic growth rate that could be achieved if half of the population had both primary and secondary schooling.

Major Conclusions from the Four Scenarios

There are two major inferences that can be made from the four case scenarios. These conclusions are as follows:

Education is Necessary for Sustained Economic Growth

The four cases presented above demonstrate that investment in education pays dividends in the long run in the form of economic growth. In particular, the data allowed the researchers to investigate the economic impact of various age and educational structures (Pawell 2011). The study findings show that the effect of educational attainment on economic growth and development varies by the age structure. For instance, tertiary education of young adults (ages 20-39) leads to a more significant economic growth than the adults’ tertiary education. However, the adults’ secondary education leads to a higher economic growth than the same education of the young population.

Secondary Education should be Made an MDG Goal.

In the year 2000, international leaders declared the United Nations MDG goals during a meeting in New York. One of the prominent goals announced during this assembly was the importance of universal primary education. However, as research indicates, secondary schooling is more important for long-term economic growth than just primary education. Thus, secondary education should also be made an MDG goal (Mauro 2010).

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