EDUCATION AND ECONOMIC GROWTH
EVIDENCE FROM CHINA AND POLICY IMPLICATIONS
Weibin Xu
A DISSERTATION
In
Education
Presented to the Faculties of the University of Pennsylvania in Partial Fulfillment
Of the Requirements for the Degree of Doctor of Philosophy
2000
Supervisor of Disseftation
Graduate Group Chairperson
Trang 2UMI Number: 9989672
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Trang 4Acknowledgement
This dissertation started froma research project I undertook at Beijing University in May 1999, where Dr Weifang Min
Weifang Min for nis constant encouragement and support Since chen, I went through all the pains and pitfalis of reviewing
he tì QO (a {a + + ta
normous time 3 ussing with me every detail cf my
fa 7Ö om 3 ct wm
dissertation Dr Tierney imeressed me with nis patience, scholarship, and rigor I feel indebted to him, and without his
which helped me focus my dissertation in the right direction and
es
er + rt ® L oO cm O hh 'O O qc (DĐ 3 ct ke: fu er 'S lại Oo oO tk œ a a ret mn om Q a t
te
ct fee 0 a ` ä Be Q QO te t- (Ù fel) iQ Cc
iden
at the Institute of Higher Education, Dr Xiachao Ding, Prot
Trang 6ABSTRACT
Education and Economic Growth
Evidence from China and Policy Implications Weibin Xu
Dr Michael Tierney
Over the last two decades, China has witnessed extraordinary growth, which generates interest across the world While many udies nave been conducted tc investigate relation of education
a qt (b
and economic growth, no systematic efforts na
fw n ư o hy f1 On fu GC ứ oo tt + (t “ D (Ù a o (b r3 D Q c 0 fu († we
Oo 3 ®œ 3 Q om Ø O 3 O a 2 QO ta là Oo = rt oe] Ww 0® (n @ a}
on panel data from China, which cover tnirty provinces Iver 4 eriod of twenty years from 1978 to 1997, this present study
'D
develops one of the first detailed national and crovincial average years of schooling measures and chysical capital stock
measures for China, an axamines causality between education and
ore acceptabie econometric models
3
conomic growth by employing 2
a QO a Q q oO CG om tr Q Kr a “a 2 (D th '- @œ 0 a a O rh Đ c a ® et ke O 3 bea 3 'S rey) ty ct t ry O i L
+
e là) ®
revised aggregate production function and autcregress:ve 2agded qrowth regression model, which expli citiy includes lagged dependent variables, nave been estimated by a speciai
approach co take into consideration the unique
I
tatistica
a
Trang 7positive lagged effects upon economic growth, which in this study is measured as total GDP and real per capita GDP growth as weli Dramatic variation across three geographic regions in terms of impact of education has been detected, which may signal
fundamental disparity of the combination of factor insuts in Nal Oalanced development of
W Cc Q 1Q @ (ñ f1 Ui a
tnese regions Tnis study
ble Su 2 ne sie tù = co ct w usra education and other factors are centr
es a ror economic
long-term growth, and education is one of the caus qrowtn
Trang 8Table of Contents
I Statement of the Problem 1
ILI Review of the Literature 7
2.1 Theoretic Framework 7
2.2 Education and Economic Growth v0
2.3 Research Questions 44
III Methodology 46
2.1 Overview 46
3.2 Research Sample 9
Go 3 Operationalization of Key Variabies aa
IV Data Analysis 111
4.1 Simple Statistical Analysis iis
4.2 Econometric Analysis 129
V Conclusion 163
Appendix Table 180
Bibliography 263
Trang 9List of Tables Table 2.1 Education Data: Selected Countries
Table 2.2 Contribution of Education to Growth of Real National Income
Table 2.3 Contribution of Education to Economic Growth in Selected Countries
Table 2.4 Contribution of Education to Economic Growth in China
Table 2.5 Returns to Investment in Education Table 2.6 Returns to Education by Sex
Table 2.7 Returns to Investment in Education
Table 2.8 Variation in Returns to Education since i985 Table 3.1 Economic Growth Rate by Various Merhcds Table 3.2 China's GDP growth by Different Deflators
Table 3.3 Annual Average Growth Rate of Per Capita GDP by Region
Table 3.4 Annual Average Growth Rate of GDP by Region Table 3.5 Standard Deviation of Per Capita Growth by
Trang 10Table 3.6 Standard Number of Schooling Years for Each
Level of Education
Table 3.7 Distribution of Secondary Enrollment
Table 3.8 Standard Deviation of Educational Attainment
Table Table Table Table Table Tabie nS rà by Region
3.9 Indicators of the Quality of Education by Region in Selected Years
3.10 Retail Price Index and Price Index of
Investment
Correlation Coefficients of Educational
Attainment and Per Capita GDP Growth Rates by Levels of Education and Periods
4.2 Correlation Coefficients of
Educational Quality and Per Rates by Periods
4.3 Correlation Coefficients of
Educational Quality and Per
Trang 11Capita GDP and Per Capita GDP Growth Rates
by Periods 120
Table 4.5 Correlation Coefficients between
Educational Attainment and Per Capita GDP
in 1978 +21
Table 4.6 Simple Econometric Models on Economic
Growth and Relevant Variables 126
Table 4.7 Estimates of Aggregate Production without
Lagged Variables 143
Table 4.8 Fixed Effect Model with Interaction Terms L46
Table 4.9 Correlation Coefficients between GDP and
Ị d> ‘oO
Various Input Factors
Table 4.10 Correlation Coefficients of between
Physical Stocks and Various Education Measures 150 Table 4.11 Fixed Model of Economic Growth 158 Table A.1 Enrollment and Population by Province 180 Table A.2 Census Data of Population by Education
Attainment 211
Table A.3 Average Years of Schooling by Province 216
Trang 12Table A 4 Provinces by Region
Table A.5 Comparison of Various Price Index for Physical Capital Investment
Table A.6 Physical Capital Stock by Province
Table A.7 Comparison of Various Price Index for Growth
Ww ai ct (b
Table A.8 Average Per Capita Growth
Table A.9 Aggregate Production Function with
Previous GDP
Table A.10 Aggregate Production Without Previous GDF Table A.11 Autoregressive Distributed Lag Model
Table A.i2 Multicollinearity Diagnosis
Table A.13 Aggregate Production Function by Region Table A.14 Growth Regression
Table A.15 Growth Regression with Birth Rate
Table A.16 Growth Regression with Education Quality Table A.17 Growth Regression by Region
Table A.18 Growth Regression by Five-year Period
Trang 13List of Illustrations
Figure 2.1 The Basic Solow Diagram Figure mị I 1Q G tý oO trị kK ta Cc tý (D Figure Figure Figure
3.1 Economic Growth of China from 1979-1997 3.2 Trend of Educational Attainment by Region 3.3 Average Physical Stock by Region
3.4 Trend of Within-region Difference in Physical Capital Stock
3.5 China Arable Land from1978 to 1995 3 vfs .6 ke ho f= uy Total China
atural Growth Rate and Dd
oy Region
Education Attainment and Per
at Oo r Q ký O s ct a + to ~) œ j te oO to ”
Per Capita GDP and Education
t oS ¬ to ~~) co
xi
Population and Employed Persons of
eath Rate of China
and Per Capita
Trang 14Figure 4.4 Education Attainment Deviation and Per Capita GDP Growth 1978-1997 \O
Figure 4.5 Lag Coefficients of Education Measures
for Aggregate Production Function (Controlled for Contemporaneous GDP)
fu tý + O G U m Đa Z Q 0 ct 2 Oo
Lag Parameter Estimates of
tạ
J
br Q CG Nn (b da Or
For Aggregate Preduction Function iNot
Controlled for Previous GDP}
Figure 4.7 Lagged Education Coefficients of
Autoregressive Lagged Distributed Mcdel Figure 4.8 Education Impact by Region
Figure 4.9 Lag Coefficients of Various Education
tr
Measures for Growth Regression (Contro
~
for Contemporanous Lagged Growth)
rh Figure 4.10 Lag Coefficients for Various Education 9
Growth Regressions (Controlled for Education Quality)
Figure 4.11 Lagged Education Impact by Region
Figure 4.12 Coefficient Estimates of Education for Growt
Trang 15Regression (Controlled for Initial GDP) Figure 5.1 Seamless Web
Trang 16i STATEMENT OF THE PROBLEM
Since China launched its economic reform in 1978, it has enjoyed an unparalleled period of economic success, which has aroused interest around the world Building on pre-reform achievements ineducation, health, and macroeconomic stability, China witnessed an average annual GDP growth of 9.8 percent from 1978 to 1997, with a surge to 11.4 percent from 1982 to 1988 Following a brief retrenchment that trimmed growth to 4.i percent in 1989 and 3.8 percent in 1990, the economy has resumed very rapid growth, reaching a preathtaking 14.2 percent in 1992 and 13.5 percent in 1993 Although affected by the Asian <inancial crisis, China still leads Asian economies with growth of 8.8 percent in 1997
China also is successful in reducing poverty Since 1978, a staggering 200 million people nave been lifted out of absolute poverty (World Bank 1997b) Incontrast to the pre-reform period, when real incomes were flat or declining and the state squeezed consumption to invest 30 percent of GNP, there has seen a marked improvement in living standards Radio, TVs, and other consumer goods have become commonplace, and consumption of pork doubled from 1978 to 1988 to nearly 15 kilograms per person annually
Trang 17Since reforms started in 1978, however, China's income
distribution has become increasingly unequal The Gini
coefficient, as lowas 28.8 in 1981, reached 38.3 in 1995 (World Bank 1997b), similar to that of the United States In 1981, China was an egalitarian society, with an income distribution similar to that of Finland, the Netnerlands, and Romania But rapid economic growth has brought dramatic change, so that China's income inequality is now just about average by international standards (Word Bank 1997b, 7) A change of this magnitude is highly unusual and signals deep structural transformations in the underlying distribution of assets and in their rates of return
During the same period, China witnessed a steady growth in education, with an explosive growth occurring in higher education The enrollments in higher education expanded from about 856 thousand in 1978 to 3.17 million in 1997 During the period from 1978 to 1995, government expenditure on education increased from 75.05 hundred million yuan to 1196.65 hundred miliion yuan (in current prices), but its share in GDP, whicn removes the effect of price increase, instead decreased from 2.1 percent to 1.6 percent Between 1990 and 1997, a period for which more detailed data are available, higher education
Trang 18enrcllment rates grew from 3.7 percent to 9.1 percenE (7i 1999), and adult illiteracy rate fell from 15.88 percent to 12.11 percent Overall, average years of schooling increases from4.49 years in 1990 to 5.42 years in 1997 (State Statistical Bureau
1998)
Tne growth in education has had a significant impact on not only productivity and economic growth, but aiso on poverty and income inequities The relationship between education and economic growth is not just one way Psacharopoulos (1995) stresses that human capital and economic growth 'reinforce one another' (Psacharopoulos 1995, 2), and education is believed co be one of the most important elements in human capital He explains:
Economic growth is needed to generate more opportunities for people to earn their way to better life Human capital must be built up so people wiil have the skilis and abilities they need to take advantage of tnose opportunities Economic growth makes it more attractive for people to improve their own and their children's skills and abilities and gives them and their governments more resources to do so Investing in human capital better equips people for new work possibilities and thus makes the entire economy more competitive in global markets and strengthens the prospects for faster economic progress (Psacharopoulos
1995, 2)
Science and technology play a critical role as sources of economic growth and competitiveness in the new information
Trang 19economy Dramatic innovation in information technologies in the past two decades nas made technological capacity even more crucial for economic growth Because the adequate use of advanced information technology is highly dependent upon the general level of education of labor force, there is a growing connection between people's intellectual capacity and their countries' development potential (Carnoy and others 1982)
Higher education institutions are central to a nation's capacity to connect with the new international knowledge system and to adopt, adapt, and further develop the new technologies Castells (1993) vividly put it
If knowledge is the electricity of the new informational international economy, then institutions of higher education are the power sources on which the new development process must rely
There 1s extensive literature on the effect of education on economic growth However, this study goes further and
Trang 20of education on economic growth have been largely igncred In Chapter 2, the present study makes a modest attempt to review some of the important research on this problem, such as the contribution of education to economic growth, that has during the last four decades drawn enormous attention among economists, educators and policy makers, and critiques the methodological problems embedded in prior studies
The literature survey does not claim to be exhaustive, nor is it possible ina study cf this size Instead, major recent studies in general, and those pertaining to China in particular, will be identified, and special attention will be paid to their methodology Specifically, the literature review is divided into three sections: It starts with the general description of the basic models underlying the current study in Section 2.1 Section 2.2 reviews tne abundant research on relationship between education and economic growth The literature review concludes with a number of research questions articulated in Section 2.3
Following the critical review of the major studies, Chapter
3 identifies major data sources, examines the strength and
weakness of these sources, and constructs the basic variabies based on the panel data covering all 30 provinces in China for
Trang 21a period of two decades, 1978-97 Descriptive statistics of economic growth rate and total GDP and the major independent variables are produced
Chapter 4 focuses on data analysis Inferential statistics are produced mainly along two lines of modei specification: aggregate production function and growth regression Every effort is made to make sure the findings are not piased due to
rarious statistical oroblems, such as extreme values,
autocorrelation, neteroscedasticity, and multicoilinearity The study concludes with presentation of research finding within the context of proposed research questions Limitations cf the current study are identified, and suggestions for future
Trang 22Ti REVIEW OF THE LITERATURE
A large body of research has been conducted in this field, especially following the new endogenous growth theory raised in late 1980's This study surveys most recent studies since 1990, with an added focus on studies conducted in China
In the first section, the theoretic framework of Solow's neoclassical growth model as well as more recent endogenous growth model is laid out Then recent empirical evidence of effects of education on economic growth is presented in two major areas: growth accounting and return to education Also inthis section is a methodological review of the empirical studies The third section is devoted to a sketch of researcn questions
derived from the literature review
2.1 Theoretic Framework
Economists have put forward two broad interpretations of economic growth, the neoclassical theory and the endogenous growth approach Solow's neoclassical growth theory came first Then, the expanded Solow's model, a model primarily based on Mankiw, Romer and Weil (1992), which explicitly includes human capital into the growth analysis, was introduced Finally, the endogenous growth medel, picneered by Romer (1990) and Lucus
Trang 23-(1988), will be presented
Solow’s Growth Model
In the 1960s, growth theory consisted mainly of the
neoclassical models, as developed by Solow (1956), Cass (1965), and Koopmans (1965) It is based on the assumption that as physical and human capital are accumulated their incremental contribution to output diminishes Over time, wage rates and capital-iabor ratios across different countries are expected tc converge Consequently, initial conditions or current disturbances have no long-run impact on the level cf output and consumption Without technological change, per capita output should converge to roughly equal level That is, poor economies will eventually catch up with the leaders by growing faster than rich economies for the same level of investment in physical and human assets
A simple neoclassic growth model was set out by Solow (1956, 1957) Tf Q represents output and K and L represent capital and labor inputs in 'physical' units, then the aggregate production function can be written as:
@=F(K.L:r) (1)
The variable t for time appears in Fto allow for technical change,
Trang 24which includes any kind of shift in the production function, such as slowdowns, speedups, improvements in the education of the labor force, etc
Under the assumption of neutral technical change, the production function takes the special form
Q=410)/(K.E) (2)
where the multiplicative factor A(t) measures the cumulated effect of shifts over time Differentiating (2) totally with respect to time and dividing by Q, ome obtains
Q XÃ fl sa
—==—~.i——~+~+.iI—— QO L (3)
14 : wo: cQ K -
where dots indicate time derivatives Now define ow, “SG and ẻ
, the relative shares of capital and labor, and
OA i
—=—+ứ/), —*(0, — (4)
O A L
where the term Af A is a residual between the growth of output, and the weighted sum of growth cf factor input measures total factor productivity (TFP)
Trang 25that is, the function has constant return to scale, which allows
to relate output per worker to the capital/labor ratio
- - =1- i/ Of Lb
Let Q/L=q, K/L=k, w,=|-@,, note that ¥ O Ly and
ky a hy ly, so (4) becomes
Got £ (5)
gc 1 k
Solow's model underlies the sources-of-growth method Its purpose is to identify the main determinants of the growth rate of the GDP Of special interest to this study is the contribution cf education to economic growth
The Solow Model with Human Capital
The concept of capital in the neoclassical mode can be usefully broadened from physical goods to include human capital in the forms of education, experience, and health Economists have long stressed the importance of human capital to economic growth
In an seminal paper published in 1992, Gregory Mankiw, David Romer, and David Weil noted that the fit of the Solow model could be improved by extending the model to include human capital,
i.e., by recognizing that labor in different economies may
Trang 26possess different levels of education and skills
Suppose that output, Y(t), in an economy is produced by combining physical capital, K(T), human capital, H(t), with raw labor, L(t), under the level of technology, A(t)
Fur) = Ki)? Bey? (Lay)? (6)
L(t) and A(t) are assumed to grow exogenously at rates n and
Lit) = Ld)e” (7)
„l(r) = 4(0)e" (8)
Defining kas the stock of physical capital per effective unit of Labor, k=K/AL, y the level of output per effective unit cf labor, y=Y/AL, and h the level of human capital per effective unit of labor, h=H/AL, the growth of k and h is given by
v6)
kự)= s, YŒ)—(+ g~ở)&() ( hỮ) = sự) (1+ g +ở)hŒ) (10) where 0 is the rate of depreciation It is assumed that one unit of consumption can be transformed into either one unit of onysical capital or one unit of human capital Furthermore, human capital is assumed to depreciate at the same rate as physical capital, and @+f#<!, which means that there are decreasing returns to ali capital
Trang 27Equations 9 and 10 imply that the economy converges to a steady state defined by 1-8 A đ S ‘Neu < k = ( k h „ha (11) H+g+ò sighe h = ( kh =) (12) I+rữ tổ
Substituting 11 and 12 into the production function and taking logs, the steady-state income per capita is given by
Y(t)
In) = In 0) + gr - 22min g +5) In(s, )+ B
ự -a-B ———— l-a-£B l-a-fB In(s„ )
(13)
This equation shows that per capita income decreases with population growth and increases with the accumulation of physical and human capital
Endogenous Growth Theory
Neoclassical growth theory became the dominant way to model economic growth in the 1970s and 1980s, but doubts remained about its value Empirical studies, first in the United States and then in many other countries, decomposed economic growth into what can be accounted for by increases in factor inputs and what can be accounted for by increases in TFP The contribution of TFP often outweighed that of factor augmentation, which
Trang 28supported the neoclassical policy recommendation of promoting technical change Nevertheless, it was worrying that the key contribution was calculated as a residual, and that the engine of growth was exogenously determined ‘technical change.'
International comparisons of growth rates also pointed to two facts, which are inconsistent with the basic neoclassical growth model First, major policy shifts affecting international trade have been associated with large and sustained changes in growtn rates Second, if there are diminishing returns to factors, then less developed countries should have higher marginal products of capital and therefore faster growth in output than hign- income countries, the theory predicts convergence of per capita incomes Instead, we observe persisting income differences across countries Barro (1991) presents the argument
succinctly:
In neoclassical growth models with diminishing returns, such as Solow (1956), Cass (1965) and Koopmans (19655), a country's per capita growth rate tends to be inversely related to its starting level of income per person Therefore, inthe absence of shocks, poor andrichcountries would tend to converge in terms cf levels of per capita income However, tnis convergence hypothesis seems to xe inconsistent with the cross-country evidence, which indicates that per capita growth rates are uncorrelated with the starting level per capita product
Trang 29conditional sense, i.e., by holding some variables constant then a negative relationship between initial income and subsequent growth could be found In other words, if economies differ in various respects, including propensities to save, access to technology, and government policies, then the convergence force applies only in a conditional sense The growth rate also tends to be high if the starting per capita GDP is iow in relation to its long-run or steady-state position; that is, if an economy begins far below its own target position
In the late 1980s, growth theorists began to questicn tne key assumptions of the neoclassical growth modei: constant returns to scale and diminishing returns to repreducible capital The new growth theory became known as endogenous growth theory, because it aimed to 'endogenize' the sources of growth in contrast to neoclassical growth, which relied on unexplained technical change In this model, increments in physical and numan capital make either the same contribution or an increasing contribution to output as economies become richer
Endogenous growth originates with Arrow (1962) and his analysis of learning py doing He constructed models in whicn ideas were unintended by-products of production or investment In his models, each discovery immediately spilled over to the
Trang 30entire economy, an instantaneous diffusion process that might be technically feasible because knowledge is nonrival Uzawa
(1965) constructed a planning model with labor growing
exponentially and knowledge produced ina separate R&D sector Building on the work of Arrow (1962) and Uzawa (1965), Romer (1986) drew attention to the fact that exogenous technical change was an unsatisfactory mechanism for causing per capita consumption to grow Once growth is made endogenous, tricky issues of pricing or decentralizability become intrinsic Lucas
(1988) introduced an average labor quality variable in the production function for aggregate output At each date there was output and an indirect efficiency gain, an externality yielding a shift in the scale of production In these medels, growth may go on indefinitely because the returns to investment
ˆ J
capital goods do not necessarily diminish
rnq
ass oO
B
in a Drcad c
as economies develop However, they did not really introduce a theory of technological change
A decentralized theory of technological progress requires fundamental changes to the framework in order to incorporate elements of imperfect competition The incorporation of R&D theories and imperfect competition into the growth framework,
however, did not come until Romer (1990), which combines
Trang 31endogenous growth in per capita consumption and an approach to decentralizability In this model, the R&D sector was financed by a mark-up in the intermediate goods sector The intermediate goods were involved in producing final output
The Romer (1990) model endogenizes technological progress py introducing the search for new ideas by researchers interested in profiting from their inventions In contrast to the
neoclassical mcdeis, in which technical change is exogenous, the Romer model describes technological progress as driven by R&D and explains how the technological frontier is continually pushed outward
The aggregate production function in the Romer model defines output as a function of the capital stock, labor, and the stock
of ideas
F =K*“(41,)* ( + rh
where @ is a parameter between 0 and 1
For a given level of technology, A, the production function exhibits constant returns to scale in K and L, However, when ideas (A) are also an input of production, then there are increasing returns That is, the production function exhibits increasing returns with respect to all three inputs; if capital, labor and the stock of ideas double, then output will more than
Trang 32double The presence of increasing returns to scale results primarily from the nonrivalrous nature of ideas
For the moment, A is assumed to grow at a constant rate g: A
—=g A” (15)
Capital accumulates as géople in the economy forego consumption at some given rate, s,, and depreciates at the exogenous rate
a:
K=s,.¥-dk (16)
Labor grows exponentially at constant and exogenous rate n:
(17)
m
| lI =
Combining equation 16 and 17 yields the capital accumulation equation in per effective worker terms:
& ~
ko =s,V-(nte ed k (18)
where T=¥/AL, & =K/AL, and k=dk ‘ut
The capital accumulation formula can easily be analyzed ina Solow diagram (see figure 2.1)
Notice that at k, , the amount of investment ver worker exceeds the amount needed to keep capital per worker constant, so that
Trang 33~
capital deepening will continue until £=#`, at which point
sÿ=(n+g+đ)k, so that £=0 Atr this point, the amount of capital per effective worker remains constant, and we call sucha point a steady state
~ ~ * ~
k, kik
Figure 2.1 The Basic Solow Diagram
To see the growth implications of the model with technology, rewrite the production function i4 interms of output per worker, and take logs and differentiate:
(19)
Vv k A where y=Y/L, and k=K/L
= ¬ ¬
At the steady state, £ equals 0, so it is easy co show that brad: Given equation 19, along a balanced growth path, ver capita
Trang 34output, the capital-labor ratio, and technology must grow at the same rate
§ =k, H8 (20)
According to Romer model, A(t} is the stock of knowledge or
the number of ideas that have been invented over the course of
history up until time c In the simplest version of the model, 4 is equal to the number of people attempting to discover new ideas, L,, multiplied by the rate at which they discover new ideas, ở:
Dividing both sides of equation 21 by A yields
—=d0—=0 4d oL, Sl
at A of (23)
where šs„ is the share of the labor force engaged in R&D Along a balanced growth path, d/4=2g is constant, and L,/L,=n
It is easy to show that
ư =n (24)
Combining equations 14, 16, 20 and 23, we find tnat steady-state income per capita is
in) = In Lt) +n -s, )s, +Ind —Ing, +—“—Ins, -—2—-Inn+ g, +)
L(t) ` l]-# l-a@
Trang 35(25) According to equation 25, per capita output is positively related to the magnitude of labor force along a balanced growth path, which largely arises fromthe nonrivalrous nature of ideas Further, amore populous world economy simply has more potential researchers leading to more ideas
Many of the new growth theorists emphasize the role cf numan capital, which may yield externalities; people are more
productive when surrounded by educated people The economy wiil underproduce knowledge because the private return is less than the social return (due to the externalities), so tnere is an argument for government to subsidize the provision of schooling and other methods of knowledge diffusion
2.2 Education and Economic Growth
This section focuses on the empirical evidence of the contribution of education to economic growth, along two main lines of research: growth accounting and return to education This section concludes with description of the methodology problems in empirical studies
The attainment of high, steady rates of economic growth, measured by the growth rate of Gross Domestic Product (GDP), has been a key goal for many countries In an attempt to
Trang 36understand the growth process, economists have examined the relative importance of various factors, including education, in the growth process
As Miller (1967) points out, 'not just any kind of education will' promote economic growth ‘Education is a source of economic growth only if it is anti-traditional to the extent that it liberates and stimulates as well as informs the individual and teaches him how and why to make demands upon himself.'
Dean (1984) wonders whether education affects economic growth through its impact on cognitive skills or rather through 'more subtle skills, or heightened personal ambitions' (Dean 1984, 5) He also wonders whether the main impact of education is through its 'development of flexible and imaginative future employees who can break bottlenecks and respond to unexpected opportunities' (Dean 1984, 5) Finally, he asks whether education is a complement to other inputs in the production process, 'so that its contribution rises or falls depending on events occurring elsewhere in the economy' (Dean 1984, 5)
In short, the contribution of education to growth is presumed to occur through its ability te increase the productivity of labor force in various ways, including both technical training
Trang 37and general education But exactly how education increases productivity, how important it is, and in what ways it is important, are difficult questions which remain unanswered
Growth Accounting
Under numan capital theory, the growth accounting approach aims to disaggregate che total economic growth into
contributions from different factors of input Pinpointing tne effect of education upon economic growth, the growth accounting approach rests on the basic assumption that education can improve labor productivity, which is still a controversial issue
in general, countries that have higher levels of income tend to nave higher levels of educational attainment (see Table 2.1), out this cannot be interpreted to mean that education is a necessary cause of higher level of output and income Education
is both an investment good and a consumption good As income grows people tend to demand more education, and can afford more education, both for themselves and for their children Whether education contributes to rising productivity is a debatable point
In order to understand the contribution of education to growth,
Trang 38one must understand the causes of growth and the growth process itself Traditionally, economists have identified tnree factors of production: land, labor, and capital In the growth process, land will presumably not change, so that the key factors are the growth of labor and capital
Table 2.1 Education Data: Selected Countries
A 8B Cc D
M oF M F Pri Sec Tertiary
China 750 10 27 68 71 118 67 5 India 380 35 62 62 63 200 49 6 Japan 40,940 - - 77 83 102 99 40 Korea, Rep 10,610 1 3 69 76 101 101 52 United States 28,020 - - 74 80 102 97 81 -Not available
Per capita GNP in 1996 in USS Adult illiteracy Rate in 1995
Gross enrollment rate in 1995 A
B Cc D
Source: World Bank (1998)
Life expectancy at birth in 1996
In the beginning, the unexplained proportion of economic growth, i.e., the 'residual,' was attributed to ‘technical
progress' (Solow1957) Later works (e.g., Denison 1962) clearly established that changes
23
Trang 39unit of input account for the residual A certain part of this productivity growth is attributable to improvements in resource allocation, changes in the legal and human environment, and economies of scale There is a large residual labeled ‘advances in knowledge and miscellaneous determinants,' which accounts for a iarge share of total growth In Denison's words, 'The advance in knowledge is the biggest and most basic reason for the persistent long-term growth of output per unit of input’
(Denison 1979, 79) Broadiy speaking, it can be said to constitute non-formal education, and technical and managerial <nowledge, obtained in a variety of ways ranging from organized research to simple observation and experience In other words, numan capital, particularly education, forms a significant proportion of this residual
The pioneering work by Schultz (1961) paved the way for medern growth accounting in general, and for research of education's contribution to economic growth in particular At the same time, the major work on growth accounting has been carried out by Denison (1962, 1967, 1974, 1979, 1984, 1985) Denison (1962) estimated that 23 percent of the growth rate in per capita
(employed) income between 1909-29 in the United States could be due to education, and the corresponding figure was as nigh
Trang 40as 42 percent during 1929-57 According to his later works (Denison 1974), it was found that 21 percent of the growth during 1948-73 was due to increased levels of education of the labor force A summary of the results obtained by Denison (1985) is reported in Table 2.2
Table 2.2 Contribution of Education to Growth of Real National
Income
1929-48 1948-73 1973-82
Growth of real NI* 2.44 3.58 1.26
Growth ascribed to education 0.48 0.52 9.62 Growth ascribed to education (%) i9.7 14.5 49.2 Growth of real NI* ver employee 1.33 2.45 -0.26 Growth ascribed to education 0.48 0.52 0.42 Growth ascribed te education (%) 36.1 21.2 -
- Not available
a NI refers to national income
Source: Data are from Denison (1985)
Denison's and Shultz's widely accepted growth accounting equations were replicated by many researchers In a
comprehensive survey, Psacharopoulos and Woodhall (1985) reports estimates of the contribution of education to economic