Does Education Cause Economic Growth? E. Podrecca, G. Carmeci Joanna Rymaszewska Seidu Issah Development Economics Warsaw University 13 November 2007

Development Economics Warsaw University2 Steps Economic growth models Where is education? What is the connection between education and economic growth? Discussion

Development Economics Warsaw University3 Growth theories Solow Growth Model Exogenous approach Neoclassical/Endogenous Growth Model Endogenous approach

Development Economics Warsaw University4 Education fires up technological progress Ideas, knowledge and skills– ability to use more advanced capital goods R&D spillovers, FDIs, international trade Where is education?

Development Economics Warsaw University5 Education contd... Technological change accounts for differences in the rate of economic growth & income differences across countries Technological change; innovation and imitation requires human capital as an input Formal education is an important source of human capital

Development Economics Warsaw University6 Granger causality Which do you think came first? The question has baffled scientists through the ages.... be it chicken-egg-chicken-egg... Growth Educational stock Educational investment

Development Economics Warsaw University7 Growth and human capital... Human capital stimulates productivity growth directly or indirectly...growth Investment Human capital as a vehicle for technical progress...levels Quality of human capital

Development Economics Warsaw University8 Capitals and growth Physical capital investment Investment in education G-cause Physical capital formation Educational levels (stocks) Physical capital + Human capital = Growth There is no Granger causality in both ways!

Development Economics Warsaw University9 The model.. VARiations Dataset: 86 DCs and LDCs GMMvar 1st, 2nd ord order autocorrelation 3– period-lag instrumental variable Ommited variable problem

Development Economics Warsaw University10 Discussion Education  Human Capital TFP Quality of eductional system Work experience and on the job training Health of the labour force EFA – Education for All:2015’ UNESCO

Development Economics Warsaw University11 Under what conditions does education boost economic growth? Conducive environment Teachers – students relationships Infrastructure Relevance Does education at all levels cause growth? Discussion contd.

Development Economics Warsaw University12 Further readings... Marta Simões, (2006); How does education affect economic growth? An empirical investigation. GEMF – Grupo de Estudos Monetários e Financeiros Faculdade de Economia da Universidade de Coimbra; Av. Dias da Silva 165. Charles I. Jones, (2002); Introduction to Economic Growth. 2nd Edition.

Development Economics Warsaw University13 Education is harder to steal (and therefore also to tax) than physical wealth... "If a man empties his purse into his head, no one can take it from him.„ ~Brian’s Education Blog Thank you