Expenditure on Education, Years of Schooling, and Economic Growth, Slides of Banking and Finance

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Expenditure on education and economic growth 87 countries y = 0,295x - 2,5403 R2 = 0,0675 -6 -4 -2 0 2 4 6 0 2 4 6 8 10 Public expenditure on education 1980-97 (% of GNP) Pe r c ap ita e co no m ic g ro w th 1 96 5- 98 , a dj us te d fo r in tia l i nc om e An increase in public expenditure on education by 3½% of GNP is associated with an increase in per capita growth by 1% per year. r = 0.29 Docsity.com Years of schooling and inequality 46 countries y = -0,8641x + 49,129 R2 = 0,1291 0 10 20 30 40 50 60 70 0 5 10 15 20 Years of schooling for females 1980-97 G in i c oe ff ic ie nt An increase by one year in the schooling that girls can expect is associated with a decrease of almost one point on the Gini scale. r = -0.49 Docsity.com Secondary enrolment and economic growth 87 countries y = 0,0377x - 2,9036 R2 = 0,3424 -6 -4 -2 0 2 4 6 0 20 40 60 80 100 120 Secondary-school enrolment 1980-98 (%) Pe r c ap ita e co no m ic g ro w th 1 96 5- 98 , a dj us te d fo r in iti al in co m e An 25-30 point increase in secondary-school enrolment goes along with an increase in per capita growth by 1% per year. r = 0.69 Docsity.com Secondary enrolment and growth, again 87 countries y = -0,0005x2 + 0,0897x - 3,7212 R2 = 0,3835 -6 -4 -2 0 2 4 6 0 20 40 60 80 100 120 Secondary-school enrolment 1980-98 (%) Pe r c ap ita e co no m ic g ro w th 1 96 5- 98 , a dj us te d fo r in iti al in co m e Diminishing returns to education: The additional benefit from education becomes smaller as enrolment increases r = 0.69 Docsity.com The Kuznets curve 75 countries y = -3,8188x2 + 57,614x - 170,97 R2 = 0,2292 0 10 20 30 40 50 60 70 5 6 7 8 9 10 11 Logarithm of initial income Gi ni c oe ffi ci en t Inequality tends to increase with income at low levels of income and to decrease with income at higher levels of income Docsity.com Another possible interpretation Growth Education Growth Inequality Education Inequality + = Docsity.com Regression results Note: 87 observations. Method of estimation is SUR. t-statistics are shown within parentheses. Dependent variable Initial income Natural capital Investment rate Enrolment rate Gini coefficient R2 Economic growth -1.04 (5.51) -0.06 (4.22) 0.13 (4.61) 0.71 (2.60) -0.03 (2.28) 0.67 Investment rate -0.20 (3.97) 0.15 Enrolment rate 20.42 (13.13) -0.71 (4.50) 0.72 Gini coefficient -0.16 (4.97) 0.31 Docsity.com Regression results Note: 87 observations. Method of estimation is SUR. t-statistics are shown within parentheses. Dependent variable Initial income Natural capital Investment rate Enrolment rate Gini coefficient R2 Economic growth -1.04 (5.51) -0.06 (4.22) 0.13 (4.61) 0.71 (2.60) -0.03 (2.28) 0.67 Investment rate -0.20 (3.97) 0.15 Enrolment rate 20.42 (13.13) -0.71 (4.50) 0.72 Gini coefficient -0.16 (4.97) 0.31 Direct effect of natural capital on growth is -0.06 Docsity.com Regression results Note: 87 observations. Method of estimation is SUR. t-statistics are shown within parentheses. Dependent variable Initial income Natural capital Investment rate Enrolment rate Gini coefficient R2 Economic growth -1.04 (5.51) -0.06 (4.22) 0.13 (4.61) 0.71 (2.60) -0.03 (2.28) 0.67 Investment rate -0.20 (3.97) 0.15 Enrolment rate 20.42 (13.13) -0.71 (4.50) 0.72 Gini coefficient -0.16 (4.97) 0.31 Total effect of natural capital is -0.06 - 0.03 - 0.015 ≈ -0.10 Docsity.com Regression results Note: 87 observations. Method of estimation is SUR. t-statistics are shown within parentheses. Dependent variable Initial income Natural capital Investment rate Enrolment rate Gini coefficient R2 Economic growth -1.04 (5.51) -0.06 (4.22) 0.13 (4.61) 0.71 (2.60) -0.03 (2.28) 0.67 Investment rate -0.20 (3.97) 0.15 Enrolment rate 20.42 (13.13) -0.71 (4.50) 0.72 Gini coefficient -0.16 (4.97) 0.31 Docsity.com Regression results Note: 87 observations. Method of estimation is SUR. t-statistics are shown within parentheses. Dependent variable Initial income Natural capital Investment rate Enrolment rate Gini coefficient R2 Economic growth -1.04 (5.51) -0.06 (4.22) 0.13 (4.61) 0.71 (2.60) -0.03 (2.28) 0.67 Investment rate -0.20 (3.97) 0.15 Enrolment rate 20.42 (13.13) -0.71 (4.50) 0.72 Gini coefficient -0.16 (4.97) 0.31 Direct effect of education on growth is 0.71/E ≈ 0.02 E = 35 Docsity.com Summary of results on education An increase in enrolment by 20 points increases growth directly by 0.4 percentage points ... ... reduces the Gini index by 3.2 points ... and this, in turn, increases growth further by 0.1 percentage point So, the total effect on growth is 0.5 percentage points – not small at all! Docsity.com Marshall got it right There is no extravagance more prejudicial to growth of national wealth than that wasteful negligence which allows genius that happens to be born of lowly parentage to expend itself in lowly work. No change would conduce so much to a rapid increase of material wealth as an improvement in our schools. ALFRED MARSHALL (1920) Docsity.com Conclusion Education encourages economic growth 1. by increasing and improving human capital ... 2. ... and also social capital, by reducing inequality There is no evidence, however, that education influences economic growth through physical capital Docsity.com