Categories:
Economic Growth
Economics of Education
No. Each dot in the graph below represents a nation: Change in education on the x-axis and change in per capita GDP growth on the y-axis. Between the 60’s and the 90’s every country in this sample boosted its average years of education–it was a golden age of alleged human capital investment. Some nations boosted schooling more, some less. How did that turn out?
On average, no relationship. The trendline points down slightly, but for the time being let’s just call it a draw. It’s a well-known fact that countries that started the 1960’s with high education levels grew faster (example), but this graph is about something different. This graph shows that countries that increased their education levels did not grow faster.
And it’s not just me saying this: Here’s James Hamilton and Josefina Monteagudo, who ran a more sophisticated version of the same test:
Another troubling aspect of our results is that investment in human capital [measured via secondary education] seems to have nothing to do with changes in growth rates over time.
Lant Pritchett’s paper on the topic is summed up by the title: “Where has all the education gone?”
Some might look at these results and say, “Higher education actually is great for entire countries, but these studies just couldn’t discern that greatness. After all, correlation isn’t causation.”
But that claim creates its own puzzle: If raising education really is so fantastic for countries, why can’t we find nation-level evidence of that? We can easily find evidence that switching to faster money growth usually predicts higher inflation, that switching to more market-oriented institutions predicts faster economic growth. The correlations show up just fine there–so why is data-torturing required when countries switch to pro-education policies?
And if defenders of increased education want to claim that “We just need to do it right next time” then defenders of sound social science need to retort: “Then I’m sure you’ll understand if we absolutely insist on solid, experimentally sound evidence, along with proof of scalability, before we sign off on a nationwide program that will cost a couple of percent of GDP.”
In a world of opportunity cost, “Let’s give it a try: It can’t hurt” should be a punchline.
At our current state of knowledge, there seems to be little nation-level evidence that raising education levels in a country raises that country’s economic growth rate.
What’s worth focusing in the meantime? What kinds of economic changes within a country predict faster future growth in GDP per person? Hamilton and Monteagudo again:
[I]nvestment in physical capital [and lower] population growth…seem to matter a great deal.
Those of us who don’t like those results can take comfort: After all, correlation isn’t causation.
READER COMMENTS
ThomasL
Oct 29 2012 at 10:06am
Anyone have an ungated link to the Pritchett paper?
ssh
Oct 29 2012 at 10:42am
Education as a cure all seems like a cargo cult at this point.
RPLong
Oct 29 2012 at 11:40am
I speculate that beneficiaries of pro-education policy often emigrate from their countries of origin. So it could be that education is a boon, but the reward isn’t necessarily reaped by the country that adopts a pro-education policy.
In this case, I am thinking specifically of Bangladesh. Anyone with an education leaves the country. Sad but true.
foljs
Oct 29 2012 at 11:45am
In a world of opportunity cost, “Let’s give it a try: It can’t hurt” should be a punchline.
Said the privileged, educated upper-middle class man.
How about: education is an end to itself, and a country should pursue it anyway, despite it’s relation to “growth”.
Not to mention that education could also inform you that “growth” is not always good, some growths are cancerous.
Why should countries “grow” (and faster, at that) and not, say, “try to spread well-being to all their citizens” or “try to be eco-friendly and stable”?
Why the fetish of a “growth” without any specific goal?
David R. Henderson
Oct 29 2012 at 12:24pm
@Garett,
Good post. It would help, though, to know the scale on the x-axis.
philemon
Oct 29 2012 at 12:32pm
Pritchett speculates that there may be three possible explanations for the variable impact of schooling and economic growth across countries:
1. In some countries schooling created the skills that are not in demand, but to do the wrong thing (e.g., rent seeking, piracy).
2. The rate of demand for educated labor varies widely across countries.
3. In some countries, schooling has transmitted knowledge and skills; in others, it has been essentially worthless and created no skills.
All seem eminently possible…
MKS
Oct 29 2012 at 12:38pm
It seems to me that neither readily available education, nor abundance of natural resources, lifts a nation economically.
What does seem to economically lift a nation is: (1) opposing bribery, (2) strong contract & property laws, and (3) free markets with a optimized (low) level of regulation.
loveactuary
Oct 29 2012 at 12:39pm
Re: … “[I]nvestment in physical capital [and lower] population growth…seem to matter a great deal. ”
I hope these folks weren’t paid too much for prescribing that raising the numerator and lowering the denominator increases the quotient …
david
Oct 29 2012 at 12:57pm
Diminishing marginal returns to education?
Roger Sweeny
Oct 29 2012 at 1:32pm
foljs,
I agree that education is an end in itself, and it is a good idea for many people to pursue. However, much of what we call education is not. It is seat time.
More precisely, it is a sophisticated version of the children’s “match game.” In the match game, pairs of cards are mixed up and placed face down. The first person turns over two cards. If they are a match, the person takes the pair and goes again. If there is no match, the cards are turned back over. The second person then turns two cards over. Play continues till all the cards are gone. The person with the most cards wins. The cards can then be reshuffled and a new game begun.
In school, the teacher tells students that they should know a, b, and c. The students will show that they have memorized a, b, and c by completing a test or project. The teacher will then tell them that they should know d, e, and f and a new cycle will begin. They are then free to forget a, b, and c. Unless they care, or are going to use a, b, or c, they do.
Why would we expect this to help economic growth?
Perhaps the most biting comment on this system comes from the 6-year-old Calvin in Bill Watterson’s Calvin and Hobbes, “As you can see, I have memorized this utterly useless piece of information long enough to pass a test question. I now intend to forget it forever. You’ve taught me nothing except how to cynically manipulate the system. Congratulations.”
Tyler Cowen
Oct 29 2012 at 1:54pm
Shleifer’s recent work on human capital and *levels* of development shows a much more positive picture…
Joshua Hall
Oct 29 2012 at 2:13pm
My paper with Russ Sobel and George Crowley tries to build off Pritchett’s work by controlling for institutional quality.
To quote from the abstract:
“We find that increases in physical and human capital lead to output growth only in countries with good institutions. In countries with bad institutions, increases in capital lead to negative growth rates because additions to the capital stock tend to be employed in rent-seeking and other socially unproductive activities.”
Steve
Oct 29 2012 at 2:23pm
As David writes the expected answer is diminishing returns on education. If you aren’t accounting for current levels of education this graph is kind of meaningless…
Eduardo Pondhertz
Oct 29 2012 at 2:43pm
On the topic of education since the 1960s, any thoughts on the recent passing of IQ-research pioneer Arthur Jensen, who died last week? Not a single mention in the mainstream press…
Thomas Watts
Oct 29 2012 at 3:19pm
The author appears to be conflating “increased education” with “increased education spending”, when they are not the same thing AT ALL.
andy
Oct 29 2012 at 3:45pm
Why the fetish of a “growth” without any specific goal?
Why the fetish of education without any specific goal?
ThomasL
Oct 29 2012 at 4:11pm
@JHall
Your paper also has the incalculable virtue of being ungated. 🙂
MingoV
Oct 29 2012 at 5:20pm
There is proof that more people received more years of schooling, but there is no proof that more people became more educated. (See Roger Sweeney’s comment.) I suspect that other countries underwent the same dumbing-down of “higher” education that occurred in USA colleges over the past forty years. I also suspect that the diversion of young adults to college instead of trade schools is part of the reason why there is no correlation between years of education and economic growth.
David R. Henderson
Oct 29 2012 at 5:32pm
@Garett,
Oops. My apology. And just after accusing a commenter on one of my posts of being not a careful reader. I just now see that you have the horizontal scale in the middle.
2020
Oct 29 2012 at 7:14pm
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Chris H
Oct 29 2012 at 7:53pm
Thomas Watts writes:
Actually he’s conflating “increased years of formal education” with “increased education.” I still think your point stands however. More years sitting in a class room does not mean a more educated individual.
There are probably things which formal schools do which definitively help just about everyone who learns them, but these are going to be most prevalent on the lowest stages of schooling. I’m willing to bet that basic literacy and arithmetic probably improve the value of just about all workers to employers (not to mention to the students themselves) and produce massive gains. But the longer schooling goes the more likely that most subjects will be completely useless to most individuals. Formal education is not the only way to learn. Self-learning, on-the-job training, learning from a parent even are all examples of non-formal education that can be as important if not more so than formal education in an individual’s life.
I would suspect though that these other forms of education are difficult to measure, much less promote through government programs. Thus they get ignored.
Floccina
Oct 29 2012 at 9:42pm
IMHO we have invested much too much hope in schooling, on the other hand I still have hope for education. I just think that schools deliver very little valuable education after the 3rd grade. I think that we should try alternate means of education.
Steve Sailer
Oct 29 2012 at 10:22pm
Are there examples of countries that increased education much less or much more than their peers? Or was the global fad for more years of schooling pretty much consistent all over the world?
For example, the amount of schooling may well have declined during the Cultural Revolution in China, which probably hurt the prospects in life of some individuals. Are there other examples like this?
Steve Sailer
Oct 29 2012 at 11:50pm
“Lant Pritchett’s paper on the topic is summed up by the title: “Where has all the education gone?””
Lant Pritchett is the guy who wants America to let all the poor people in the world move here, right?
Well, I guess, ALL we have to do is fix the schools and Lant’s plan will work out fine. Oh, wait …
Steve Sailer
Oct 30 2012 at 1:21am
“[I]nvestment in physical capital [and lower] population growth…seem to matter a great deal.”
So, why do Pritchett and Caplan want to blow America’s population through the roof while depressing capital per capita?
tommy5d
Oct 30 2012 at 7:06am
The first problem with the data in this is the assumption that more years of education leads to greater education.
Steve Sailer
Oct 30 2012 at 7:08am
One issue is that years of schooling can go up during bad economic times. For example, in Southern California during the Housing Bubble, it was very common for Hispanic youths to drop out of high school to work construction. Today, however, high school graduation and community college enrollment rates are way up … because there are few jobs.
In the U.S., high school graduation rates went way up in the 20s because times were good and went way up in the 30s because times were bad. The country saw a payoff after 12/7/41, but it would have been hard to notice beforehand.
Tracy W
Oct 30 2012 at 9:58am
education is an end to itself, and a country should pursue it anyway, despite it’s relation to “growth”.
Yes, but if it’s an end to itself, the case for government funding of it is rather undercut.
Jason Keuter
Nov 1 2012 at 2:46am
I would like to propose a hypothesis I thought of one day during my career as a public school teacher: gains in productivity associated with mandatory education and the end of child labor may very well be due to getting immature, clumsy , and absent -minded children (especially boys) out of the industrial process. The gains accrued through lower labor costs could very well have been offset by losses due to immaturity.
Prior to industrialism, children were apprenticed but were under much more intense supervision. The niche positions children often times had in the industrial process conforms to a classic case of a diseconomy of scale – more specifically, the cost of supervision; without it, the children may have hindered and routinely disrupted the industrial process (just like they do in classrooms), but with it, the cost of the supervision would far exceed the savings of employing child labor.
I think this argument fits well with the idea that the market was actually getting rid of child labor prior to legislation because employers realized it was inefficient. On a related note, technology may very well have developed to replace the tasks children were uniquely suited to play. For example, I’m thinking of certain aspects of textile production that benefitted from small hands.
I think this idea has implications also regarding the question of returns on “investments” in education. It may very well be that the typical child simply has a very inherently limited potential to provide any kind of good – and certainly any kind of predictable – return on investment. Schools have succeeded in “boosting” productivity – at least historically – but I am highly skeptical that the massive amounts of money typically invested in each student is justifiable: most of the returns come from a basic level of literacy and math skills and acculturation to obeying impersonal authority.
Arthur_500
Nov 1 2012 at 1:48pm
China don’t need no stinkin education. They’ve got millions of people to work in factories. This increases GDP without any corelation to education.
That said, It would be interesting to see if increase in education improved anything else in life. Lower civil strife? Improved quality of life? Increased birth survival rate? Better quality of work life?
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