August 14, 2018
Activities: Economic Development, Education
Image source: Unsplash
Plenty of analyses have been done on the effects of education and economic growth.
Is economic growth driven by new ideas, new discoveries that result in better products and services for society?
The logical answer would be yes. A more educated workforce provides these ideas. It provides the human capital required to increase the ROI on research and development investment.
However, researchers and lawmakers often question this rationale in hopes of reducing the annual spend on education items in a government’s budget. So can we say definitively that government spending improves education?
A survey of this vast literature identified 57 studies, many of which measure education in terms of outcomes (eg enrolment rates, literacy rates, years of schooling in the workforce) rather than expenditure.
But the studies that did look at educational expenditure as a proxy for education generally reported a positive effect of education on growth.
A recent a meta-analysis considered 29 papers that specifically look at the impact of government education expenditures on economic growth. Of these 29 studies, 14 report a positive and statistically significant effect of government expenditure on growth, 12 report a negative effect, and 3 report no statistically significant effect.
Averaging across all studies, the effect of educational expenditure on growth is positive – albeit modest – in the order of a 0.2-0.3% increase in growth for an increase in expenditure by 1% of GDP.
While it appears that spending does correlate with a growing economy, it is important that the quality of education spending is maintained. Simply spending on lower-value items won’t produce the same returns as drivers of higher test scores, graduation rates, etc. A government must focus its increased expenditure on areas that provide real positive education outcomes.
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