Social Equality Education, Social Equality, and Economic Growth: A View of the Landscape Thorvaldur...
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Education, SocialSocial Equality Equality, and Economic Growth: A View of the Landscape
Thorvaldur Gylfasonand Gylfi Zoega
The Scheme of The Scheme of Things: Things: Sources Sources of of GrowthGrowth
In ves tm en t E d u ca tion
G row th
+ +
+denotes a positive effect in the direction shown
The Scheme of The Scheme of Things: Things: Sources Sources of of GrowthGrowth
In ves tm en t E d u ca tion
G row th
+ +
+denotes a positive effect in the direction shown
Adam Smith knew all this, and more
The Scheme of The Scheme of Things: Things: More More Sources Sources of Growthof Growth
In ves tm en t x E d u ca tion
G row th+ +
+denotes a positive effect in the direction shown
?
The Scheme of The Scheme of Things: Things: More More Sources Sources of Growthof Growth
In ves tm en t x E d u ca tion
G row th+ +
+denotes a positive effect in the direction shown
?
Arthur Lewis: x is trade, stable politics, good weather
Then Solow came along and said: growth is exogenous
The Scheme of The Scheme of Things: Things: More More Sources Sources of Growthof Growth
In ves tm en t
In it ia l In com e N atu ra l C ap ita l
x E d u ca tion
G row th+
+
+––
+denotes a positive effect in the direction shown
– denotes a negative effect in the direction shown
?
Endogenous growth: x can be almost anything!
The Scheme of The Scheme of Things: Things: InflationInflation and and GrowthGrowth
In ves tm en t
In it ia l In com e N atu ra l C ap ita l
In fla tion E d u ca tion
G row th+
+
+––
+denotes a positive effect in the direction shown
– denotes a negative effect in the direction shown
–
My first x was inflation (1976, 1991, 1996, 2001)
The Scheme of The Scheme of Things: Things: ResourcesResources and Growthand Growth
In ves tm en t
In it ia l In com e N atu ra l C ap ita l
In fla tion E d u ca tion
G row th+
+
+–– –
––
The Scheme of The Scheme of Things: Things: OwnershipOwnership and Growthand Growth
In ves tm en t
In it ia l In com e N atu ra l C ap ita l
O w n ersh ip E d u ca tion
G row th+
+
+–– –
––
The Scheme of The Scheme of Things: Things: AidAid and and GrowthGrowth
In ves tm en t
In it ia l In com e N atu ra l C ap ita l
F ore ig n A id E d u ca tion
G row th+
+
+–– –
– –
A new x will be foreign aid vs. FDI (with Radetzki et al.)
– –
+
The Scheme of The Scheme of Things:Things:InequalityInequality and Growth and Growth
In ves tm en t
In it ia l In com e N atu ra l C ap ita l
In eq u a lity E d u ca tion
G row th
+
+
+–––
–
Today x is inequality (with Zoega)–
Aims Aims and and overviewoverview
Explore the relationship between inequality and educationinequality and education across countries since 1965
Explore also the linkages between education and economic growtheducation and economic growth across countries since 1965
Hypothesis:Hypothesis: Education stimulates Education stimulates growthgrowth through increased equality
BackgroundBackground
Commonly held view: Economic efficiencyefficiency and social
equalityequality are incompatible, like oil and water
Okun’s “big trade-offbig trade-off”Redistribution is costly
Blunts incentives to work and save and invest in education
Leaky-bucket analogy
Background: Background: More More recent argumentsrecent arguments
1. Political economyInequality may trigger demands for
redistributionredistribution that hurts growthIt may also trigger demands for more
and better educationeducation that helps growth
2. Social cohesionInequality may lead to social conflictsocial conflict
and political instabilitypolitical instability that hinder growth
It may also lead to economic volatilityvolatility
Background:Background: More More recent argumentsrecent arguments
3. National savingInequality may stimulate saving and
hence also economic growthThat is, if the rich save more that the poorBut count the yachts!
4. EducationInequality may hurt or helphurt or help educationeducation
Help? Poor countries and politicsHurt? Rich countries and imperfect
markets
Research strategyResearch strategy
Study 87 industrial and developing countries from 1965 to 1998
Look for cross-country patternscross-country patterns in data from the World BankInequality and growthInequality and educationEducation and growth
Dig deeper through regression regression analysisanalysis
Inequality and economic growth
75 countries75 countries
What is the empirical evidence?
y = -0,0799x + 2,1297
R2 = 0,1968
-6
-4
-2
0
2
4
6
0 20 40 60 80
Gini coefficient
Pe
r ca
pit
a e
con
om
ic g
row
th 1
965-
98, a
dju
ste
d f
or
init
ial i
nco
me
A 12 point increase in the Gini index goes along with a decrease in per capita growth by nearly 1% per year.
r = rank correlation
r = -0.50
The Gini index and The Gini index and the the 20/2020/20 ratio ratio
The Gini index is closely related to the 20/20 ratio20/20 ratio
Gini = 25 ratio = 3 (Nordic countries) Gini = 30 ratio = 4 (Germany) Gini = 35 ratio = 6 (Britain) Gini = 40 ratio = 8 (US, China,
Russia) Gini = 50 ratio = 15 (Nigeria) Gini = 60 ratio = 26 (Brazil)Relationship between inequality and growth
also holds for rich rich andand poor poor separately
The Gini index and The Gini index and the the 20/2020/20 ratio ratio
The Gini index is closely related to the 20/20 ratio20/20 ratio
Gini = 25 ratio = 3 (Nordic countries) Gini = 30 ratio = 4 (Germany, Greece) Gini = 35 ratio = 6 (Britain) Gini = 40 ratio = 8 (US, China, Russia) Gini = 50 ratio = 15 (Nigeria) Gini = 60 ratio = 26 (Brazil)
Each ten-point increase in the Gini Each ten-point increase in the Gini index roughly index roughly doublesdoubles the 20/20 ratio the 20/20 ratio
Education and Education and inequality:inequality: The The missing link?missing link?
Now consider the linkages between inequality and different measures of education
The aim is to see if such linkages can help explain the observed cross-country pattern of inequality and economic growth
More on educationMore on education
Specifically, consider the relationship between inequality and threethree different measures of education inputs, outcomes, and participation:1. Public expenditure on education2. Expected years of schooling for
girls3. Secondary-school enrolment
Expenditure on education and inequality
74 countries74 countries
y = -2,3106x + 51,494
R2 = 0,1318
0
10
20
30
40
50
60
70
0 2 4 6 8 10Public expenditure on education 1980-97 (% of GNP)
Gin
i co
eff
icie
nt
An increase in public expenditure on education by 1% of GNP is associated with a 2.3 point decrease in Gini.
r = -0.36
Expenditure on education and economic growth
87 countries87 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
ec
on
om
ic g
row
th 1
96
5-9
8, a
dju
ste
d f
or
inti
al 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
Years of schooling and inequality
46 countries46 countries
y = -0,8641x + 49,129
R2 = 0,1291
0
10
20
30
40
50
60
70
0 5 10 15 20Years of schooling for females 1980-97
Gin
i co
eff
icie
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
Years of schooling and economic growth
49 countries49 countries
y = 0,2305x - 3,3678
R2 = 0,2376
-6
-4
-2
0
2
4
6
0 5 10 15 20
Years of schooling for females 1980-97
Pe
r c
ap
ita
ec
on
om
ic g
row
th 1
96
5-9
8, a
dju
ste
d f
or
init
ial i
nc
om
e
An increase by four years in the schooling that girls can expect is associated with an increase in per capita growth by 1% per year.
r = 0.50
Secondary enrolment and inequality
75 countries75 countries
y = -0,1931x + 50,557
R2 = 0,3245
0
10
20
30
40
50
60
70
0 20 40 60 80 100 120Secondary-school enrolment 1980-98
Gin
i co
eff
icie
nt
An increase in the secondary-school enrolment rate by five percentage point goes along with a decrease of almost one point on the Gini scale.
r = -0.54
Secondary enrolment and economic growth
87 countries87 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
ec
on
om
ic g
row
th 1
96
5-9
8, a
dju
ste
d f
or
init
ial i
nc
om
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
Secondary enrolment and growth, again
87 countries87 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
ec
on
om
ic g
row
th 1
96
5-9
8, a
dju
ste
d f
or
init
ial i
nc
om
e
Diminishing returns to education: The additional benefit from education becomes smaller as enrolment increases
r = 0.69
The KuznetsKuznets curve
75 countries75 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 11Logarithm of initial income
Gin
i co
eff
icie
nt
Inequality tends to increase with income at low levels of income and to decrease with income at higher levels of income
Summary of resultsSummary of results
We have seen that, across countries:1. Economic growth varies inversely
inequality2. Three different measures of education
intended to reflect education inputs, outcomes, and participation are all inversely related to inequality
3. Economic growth varies directly with all three measures of education
One possible One possible interpretationinterpretation of of resultsresults
Growth
Inequality
Growth
Education
InequalityInequality
Education
+ =
Another possible Another possible interpretationinterpretation
Growth
Education
Growth
Inequality
EducationEducation
Inequality
+ =
Regression resultsRegression results
Note: 87 observations. Method of estimation is SUR. t-statistics are shown within parentheses.
DependenDependent variablet variable
Initial Initial incomeincome
Natural Natural capitalcapital
InvestmenInvestment ratet rate
Enrolment Enrolment raterate
Gini Gini coefficientcoefficient
RR22
Economic Economic growthgrowth
-1.04-1.04
(5.51)(5.51) -0.06-0.06
(4.22)(4.22) 0.130.13
(4.61)(4.61) 0.710.71
(2.60)(2.60) -0.03-0.03
(2.28)(2.28) 0.670.67
InvestmeInvestment ratent rate
-0.20-0.20
(3.97)(3.97) 0.150.15
Enrolment Enrolment raterate
20.4220.42
(13.13)(13.13) -0.71-0.71
(4.50)(4.50) 0.720.72
Gini Gini coefficientcoefficient
-0.16-0.16
(4.97)(4.97) 0.310.31
Regression resultsRegression results
Note: 87 observations. Method of estimation is SUR. t-statistics are shown within parentheses.
DependenDependent variablet variable
Initial Initial incomeincome
Natural Natural capitalcapital
InvestmenInvestment ratet rate
Enrolment Enrolment raterate
Gini Gini coefficientcoefficient
RR22
Economic Economic growthgrowth
-1.04-1.04
(5.51)(5.51) -0.06-0.06
(4.22)(4.22) 0.130.13
(4.61)(4.61) 0.710.71
(2.60)(2.60) -0.03-0.03
(2.28)(2.28) 0.670.67
InvestmeInvestment ratent rate
-0.20-0.20
(3.97)(3.97) 0.150.15
Enrolment Enrolment raterate
20.4220.42
(13.13)(13.13) -0.71-0.71
(4.50)(4.50) 0.720.72
Gini Gini coefficientcoefficient
-0.16-0.16
(4.97)(4.97) 0.310.31
Direct effect of natural capital on growth is -0.06
Regression resultsRegression results
Note: 87 observations. Method of estimation is SUR. t-statistics are shown within parentheses.
DependenDependent variablet variable
Initial Initial incomeincome
Natural Natural capitalcapital
InvestmenInvestment ratet rate
Enrolment Enrolment raterate
Gini Gini coefficientcoefficient
RR22
Economic Economic growthgrowth
-1.04-1.04
(5.51)(5.51) -0.06-0.06
(4.22)(4.22) 0.130.13
(4.61)(4.61) 0.710.71
(2.60)(2.60) -0.03-0.03
(2.28)(2.28) 0.670.67
InvestmeInvestment ratent rate
-0.20-0.20
(3.97)(3.97) 0.150.15
Enrolment Enrolment raterate
20.4220.42
(13.13)(13.13) -0.71-0.71
(4.50)(4.50) 0.720.72
Gini Gini coefficientcoefficient
-0.16-0.16
(4.97)(4.97) 0.310.31
Indirect effect through investment is -0.20·0.13 -0.03
Regression resultsRegression results
Note: 87 observations. Method of estimation is SUR. t-statistics are shown within parentheses.
DependenDependent variablet variable
Initial Initial incomeincome
Natural Natural capitalcapital
InvestmenInvestment ratet rate
Enrolment Enrolment raterate
Gini Gini coefficientcoefficient
RR22
Economic Economic growthgrowth
-1.04-1.04
(5.51)(5.51) -0.06-0.06
(4.22)(4.22) 0.130.13
(4.61)(4.61) 0.710.71
(2.60)(2.60) -0.03-0.03
(2.28)(2.28) 0.670.67
InvestmeInvestment ratent rate
-0.20-0.20
(3.97)(3.97) 0.150.15
Enrolment Enrolment raterate
20.4220.42
(13.13)(13.13) -0.71-0.71
(4.50)(4.50) 0.720.72
Gini Gini coefficientcoefficient
-0.16-0.16
(4.97)(4.97) 0.310.31
Indirect effect through education is -(0.71/E)·0.71 -0.015
E = 35
Regression resultsRegression results
Note: 87 observations. Method of estimation is SUR. t-statistics are shown within parentheses.
DependenDependent variablet variable
Initial Initial incomeincome
Natural Natural capitalcapital
InvestmenInvestment ratet rate
Enrolment Enrolment raterate
Gini Gini coefficientcoefficient
RR22
Economic Economic growthgrowth
-1.04-1.04
(5.51)(5.51) -0.06-0.06
(4.22)(4.22) 0.130.13
(4.61)(4.61) 0.710.71
(2.60)(2.60) -0.03-0.03
(2.28)(2.28) 0.670.67
InvestmeInvestment ratent rate
-0.20-0.20
(3.97)(3.97) 0.150.15
Enrolment Enrolment raterate
20.4220.42
(13.13)(13.13) -0.71-0.71
(4.50)(4.50) 0.720.72
Gini Gini coefficientcoefficient
-0.16-0.16
(4.97)(4.97) 0.310.31
Total effect of natural capital is -0.06 - 0.03 - 0.015 -0.10
Regression Regression resultsresults
Note: 87 observations. Method of estimation is SUR. t-statistics are shown within parentheses.
DependenDependent variablet variable
Initial Initial incomeincome
Natural Natural capitalcapital
InvestmenInvestment ratet rate
Enrolment Enrolment raterate
Gini Gini coefficientcoefficient
RR22
Economic Economic growthgrowth
-1.04-1.04
(5.51)(5.51) -0.06-0.06
(4.22)(4.22) 0.130.13
(4.61)(4.61) 0.710.71
(2.60)(2.60) -0.03-0.03
(2.28)(2.28) 0.670.67
InvestmeInvestment ratent rate
-0.20-0.20
(3.97)(3.97) 0.150.15
Enrolment Enrolment raterate
20.4220.42
(13.13)(13.13) -0.71-0.71
(4.50)(4.50) 0.720.72
Gini Gini coefficientcoefficient
-0.16-0.16
(4.97)(4.97) 0.310.31
Regression Regression resultsresults
Note: 87 observations. Method of estimation is SUR. t-statistics are shown within parentheses.
DependenDependent variablet variable
Initial Initial incomeincome
Natural Natural capitalcapital
InvestmenInvestment ratet rate
Enrolment Enrolment raterate
Gini Gini coefficientcoefficient
RR22
Economic Economic growthgrowth
-1.04-1.04
(5.51)(5.51) -0.06-0.06
(4.22)(4.22) 0.130.13
(4.61)(4.61) 0.710.71
(2.60)(2.60) -0.03-0.03
(2.28)(2.28) 0.670.67
InvestmeInvestment ratent rate
-0.20-0.20
(3.97)(3.97) 0.150.15
Enrolment Enrolment raterate
20.4220.42
(13.13)(13.13) -0.71-0.71
(4.50)(4.50) 0.720.72
Gini Gini coefficientcoefficient
-0.16-0.16
(4.97)(4.97) 0.310.31
Direct effect of education on growth is 0.71/E 0.02
E = 35
Regression Regression resultsresults
Note: 87 observations. Method of estimation is SUR. t-statistics are shown within parentheses.
DependenDependent variablet variable
Initial Initial incomeincome
Natural Natural capitalcapital
InvestmenInvestment ratet rate
Enrolment Enrolment raterate
Gini Gini coefficientcoefficient
RR22
Economic Economic growthgrowth
-1.04-1.04
(5.51)(5.51) -0.06-0.06
(4.22)(4.22) 0.130.13
(4.61)(4.61) 0.710.71
(2.60)(2.60) -0.03-0.03
(2.28)(2.28) 0.670.67
InvestmeInvestment ratent rate
-0.20-0.20
(3.97)(3.97) 0.150.15
Enrolment Enrolment raterate
20.4220.42
(13.13)(13.13) -0.71-0.71
(4.50)(4.50) 0.720.72
Gini Gini coefficientcoefficient
-0.16-0.16
(4.97)(4.97) 0.310.31
Indirect effect through inequality is (-0.16)·(-0.03) 0.005
Regression Regression resultsresults
Note: 87 observations. Method of estimation is SUR. t-statistics are shown within parentheses.
DependenDependent variablet variable
Initial Initial incomeincome
Natural Natural capitalcapital
InvestmenInvestment ratet rate
Enrolment Enrolment raterate
Gini Gini coefficientcoefficient
RR22
Economic Economic growthgrowth
-1.04-1.04
(5.51)(5.51) -0.06-0.06
(4.22)(4.22) 0.130.13
(4.61)(4.61) 0.710.71
(2.60)(2.60) -0.03-0.03
(2.28)(2.28) 0.670.67
InvestmeInvestment ratent rate
-0.20-0.20
(3.97)(3.97) 0.150.15
Enrolment Enrolment raterate
20.4220.42
(13.13)(13.13) -0.71-0.71
(4.50)(4.50) 0.720.72
Gini Gini coefficientcoefficient
-0.16-0.16
(4.97)(4.97) 0.310.31
Total effect of education is 0.71/E + (-0.16)·(-0.03) 0.025
E = 35
Summary of results Summary of results on educationon education
An increase in enrolment by 2020 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 0.50.5 percentage points – not small at all!
MarshallMarshall got itgot it right right
There is no extravagance There is no extravagance more prejudicial to growth more prejudicial to growth of national wealth than that of national wealth than that wasteful negligence which wasteful negligence which allows genius that happens allows genius that happens to be born of lowly to be born of lowly parentage to expend itself parentage to expend itself in lowly work. in lowly work. No change No change would conduce so much to a would conduce so much to a rapid increase of material rapid increase of material wealth as an improvement wealth as an improvement in our schools.in our schools.
ALFRED ALFRED MARSHALLMARSHALL
(1920)(1920)
ConclusionConclusion
The
End
The
EndEducation encourageEducation encouragess economic economic
growthgrowth1.1. by increasing and improving by increasing and improving
human capitalhuman capital ... ... 2.2. ... and also ... and also social capitalsocial capital, by , by
reducing inequalityreducing inequalityThere is no evidence, however, that There is no evidence, however, that
education influences economic education influences economic growth through growth through physical capitalphysical capital