Tuesday, October 20, 2009

Education and Economic Growth

As part of a continuing series on why Argentina fared so poorly during the 20th century, Ed Glaeser discusses the potential role for education to explain country growth. This relationship is hard to identify in a regression, but note how he can still reach a conclusion by relying on a variety of complementary pieces of evidence:

... an extra year of school is associated with more than a 30 percent increase in per capita income.


One explanation for the extraordinarily strong relationship between national earnings and education is that the correlation is largely spurious.

Perhaps, richer countries choose to become more educated, so that higher income causes higher levels of education rather than the reverse. Perhaps countries with other positive attributes, like better governments, are both richer and better schooled. The individual level research has labored hard to find so-called “natural experiments” — like mandatory schooling laws that start abruptly and relatively arbitrarily in a particular year in a particular state — that enable researchers to estimate the returns to education holding individual aptitude constant. Cross-country work is not nearly as well-identified and it never will be.

Yet there are reasons to think that the education-income relationship is not mere happenstance.

Historic educational enrollments predict subsequent income growth quite well, even when holding past income constant, which seems to reject the view that education is just following income. Moreover, the link between initial education and subsequent income growth has proven to be remarkably robust, surviving any number of country-level controls, including controls for governmental quality. I’m not confident that all of the measured cross-national relationship between schooling and income is real, but more evidence supports that interpretation than any obvious alternative.

If the link between country level income and education is real, then we need to understand why the link between schooling and education gets magnified at the country level. Why should there be a social multiplier that causes the schooling-income link to increase at higher levels of aggregation?

One hypothesis is that there are spillovers from education, and that human capital enables places to gain access to better technologies. Human capital externalities occur when one person’s education makes his or her neighbors more productive. Comparing people within a country only picks up the direct effect of more education on the person being educated, and won’t reflect any of these externalities. Comparing across countries picks up all the externalities that would occur if one’s persons schooling provided benefits for everyone around.

Within the United States, researchers have found that when holding an individual’s own years of schooling constant, that individual’s earnings increase by around 9 percent as the share of college graduates in that individual’s metropolitan area increases by 10 percent. If you work around skilled people, you earn more, either because you have learned from those people or because more skilled entrepreneurs make production more efficient. After all, Buenos Aires in 1900 had significantly fewer innovative technologies than did Chicago in the same year, perhaps because of lower levels of schooling.

But country-level income and education may also be closely linked because of politics. There is a very strong correlation between quality of government and education. My work with Felipe Campante suggests that the link between Argentina’s low level of education in 1900 and its poor economic performance over the next century reflects, in part, the fact that Argentina’s lower levels of education led to worse political outcomes.

I wonder what was 'wrong' with Argentina's education? Whats the most important part of education to improve for econ growth?
-primary, secondary, tertiary?
-need more liberal arts? more engineers?
Certainly one cannot ignore the positive externalities of higher education. A curious effect of increased education is the relatively large wage increases it creates for lesser educated individuals. Further, an increase in the number of college grads generates a greater number of jobs for non-college grads. Education, it seems, has a true trickle down effect.
Perhaps this is rather odd, but what I find most interesting about this is that the work (in both the main article about Argentina and several of the linked articles) is quite recent (publication dates ranging from 2002-2009) and upon cursory examination appears to be saying things for the first time, not building on much similar existing research. This means, then, that either the federal push for math and science education that was a response to Sputnik during the Cold War was based simply on a sense that individual education could solve national problems and not on any actual research that supported that idea, or that the supporting research was not strictly speaking in the field of economics, and that these questions have only recently entered that field. Either way, it speaks to some very curious blind spots in powerful people, which I think could well be important to understand, particularly in terms of public policy.
It is interesting that for the not as educated, an increase in education leads to quite a large wage increases. I wonder why an increase in college graduates creates more positions for those who are not college graduates. In the case of being a college graduate, what effect does a specific field/major have on income and on overall effect?
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