Education increases individual productivity and wages, as well as national growth in the long run. While education levels are linked to higher incomes, measuring its impact on macroeconomic growth is difficult due to data and endogeneity issues. Recent studies find that education quality, as assessed by tests like PISA and TIMSS, is a more significant predictor of growth than just years of schooling. Examinations show developing countries vary widely in student performance, with some like Shanghai and Singapore outperforming OECD averages while others have large shares below basic proficiency levels.

3.  Education has long been recognized as one of
the key factors determining the success of
individuals and of countries as a whole.
Developed countries tend to have better
education outcomes than developing nations and,
within countries, more educated individuals earn
on average higher wages. Many countries have
been pursuing policies to improve the education
levels of their population, both in terms of time
spent in school and in terms of the quality of
education that is provided to their students.

5. Human capital refers to the productive
capacity of individuals, that is, the
knowledge and abilities that allow them to
receive a flow of income during their
lifetimes. Some of these abilities are
natural (inherited), while some are
acquired through education and training.
The pioneers in modeling the process of
acquisition of human capital were Schultz
(1963), Becker (1964) and Mincer (1974).
According to these models, education and
training are regarded as investments.

6. In deciding whether to stay in school, individuals
compare the costs and benefits of the decision. According to
these models, therefore, individuals stay in school until the
internal rate of return of investing one year more in formal
education is equal to the market interest rate. The internal
rate of return of investments in education is the discount rate
that equalizes the present value of benefits and costs
streams. Therefore, one should observe a positive correlation
between wages and time spent in school at the micro level.

7. Figure 7.1 Secondary enrolment in the developing world, 2009 (percentages)
G B
Girls are better than boys
In the term of attendance
1
23 4

8. Figure 7.1 Figure 7.1 Secondary enrolment in the developing world, 2009
(percentages)
These differences are related to economic, institutional and cultural
variations among countries. Figure 7.1, for example, plots the net
enrolment ratio in secondary education in 2009 for regions in the
developing world, based on the UNESCO Institute for Statistics database.
It shows that central Asia has achieved almost universal
coverage and that East Asia, Latin America and Central/Eastern
Europe are also doing very well in terms of human capital
formation, with net enrolment rates in the range of 80 per cent.
The Arab States are at an intermediate level, and coverage is far
from universal in the Caribbean, South and West Asia and
especially the sub-Saharan countries.
Differences in enrolment between boys and girls are not very
dramatic in general, with the exception of South and West Asian
countries, where girls are at a much lower level than boys. In Latin
America and the Caribbean, girls are actually doing better than
boys in terms of school attendance.

9. Figure 7.2 Secondary education completion, 2010 (percentages)
12
3
4
75%
Half of adult pop.
<20%
30%

10. Figure 7.2 Secondary education completion, 2010 (percentages)
In terms of higher education, however, the differences across countries are
even more prominent. Figure 7.2, for example, displays the share of individuals
older than 25 who have completed secondary education or more, in a selected
sample of developing countries (Barro and Lee, 2000).
The Republic of Korea to serve as a benchmark, which had the
same level of education as the Latin American countries at the
beginning of last century but now has 75 per cent of the
population with more than secondary education.
While in the Plurinational State of Bolivia, China, Malaysia and
Peru about half of the adult population completed at least
secondary education, in the Congo, Morocco, Senegal, Uganda and
Viet Nam, less than 20 per cent of the population achieved this
stage.
Brazil, Egypt, Indonesia and South Africa are at an intermediate
stage in the developing world, with about 30 per cent of the adult
population having completed secondary education or more.

11. Education policies
Education enables individuals to
become more productive, to
achieve higher wages and to
escape from poverty and
countries to increase their potential growth
rate, the obvious question is: how can a
developing country increase school attendance
and the quality of its public education? Boxes
7.1and 7.2summarize the recent histories of
two developing countries, China and the
Republic of Korea, that were able to change
the education levels of their population
relatively quickly.

12. Education in China
 The recent history of Chinese education is one
of reconstruction. In response to Mao Zedung’s
Cultural Revolution, China completely reshaped
education to erase “bourgeois influences”.
Schooling was normalized after Mao’s death and
several reforms followed.
 Nine-year compulsory education and local non-
government funding allowances are among the
important measures that have permitted China to
reach nearly total secondary school enrolment and
to have the largest number of undergraduate
students in the world today.
 China’s policy-makers are now focusing on
improving the quality of national education.
The curriculum has undergone reform to adapt
to students’ needs and interests, new methods are
being designed that focus on creative problem-
solving and various forms of peer interaction are
being encouraged between schools and teachers in
order to spread successful practices.

13. From zero to hero: The Republic of Korea’s
experience
After the Second World War, education became a central
element in the reconstruction of the Republic of Korea’s economy
and culture.
In 1945 saw major efforts to expand access to basic education,
making it free and compulsory.
Important provisions endorsed teacher instruction, vocational
training and a more autonomous administration.
Commitment to the educational plan was maintained even
during the Korean War, and by 1959 almost every child was
enrolled in primary-school education.
In the 1960s and 1970s, increasing the number of teachers in
the classrooms and revising the entrance exams, among other
measures.
In 1980, successive reforms began focusing on quality, as
quantitative expansion was almost complete.
 A five-year technical education plan was implemented as early
as 1958 and the school curriculum focused to a greater degree on
science and technology as the industrialization of the Republic of
Korea was being consolidated.
 With serious commitment from both the government and the
people, the Republic of Korea has managed to enter the twenty-
first century as one of the world’s pace-setters in educational
policy.

14. Demand and supply policies
Supply and demand policies can be used to increase
school attendance and its quality. Supply policies are
those concerning the provision of education, in terms
of both quality and quantity. Demand policies aim at
promoting school attendance, for instance through
cash transfers to households conditional on school
attendance.

17. Education and Growth
Naila Naseem Asghar
MP- 201503

18. Education And Growth
By increasing the efficiency of individuals in their
occupations, education also augments the
productivity of their firms and, therefore,
increases growth in the long run.
Indeed, education is often considered one of the
most efficient mechanisms of achieving growth
with social justice, because it increases growth
and reduces inequality at the same time

19. Several studies have shown that education increases
wages at the individual level. It is not easy, however, to
capture the relationship between education and growth at
the macro level, using aggregate country-level data (see
Barbosa-Filho and Pessoa, 2010; Pritchett, 2006, for
surveys). Such problems as measurement error in the
aggregate education data and the endogeneity of both
human and physical capital plague estimates of
education’s impact on growth. Some authors have argued
that the causality is from growth to education, as periods
of sustainable growth generate resources that can be
invested in education.

20. Impact of growth on education:
Some authors have argued that the causality is from
growth to education, as periods of sustainable growth
generate resources that can be invested in education. Most
recent studies, nevertheless, do find education to have a
substantial impact on growth, even after correcting for the
estimation problems.
Recent Studies:
In terms of growth, however, recent studies show that
more important than the quantity of education (average
years of schooling) is the quality of education, that is,
what the students are actually learning in schools.

21. Significant Predictors Of Growth
 Programme for International Student Assessment
(PISA)
 Trends in International Mathematics and Science
Study (TIMSS) examinations
 The PISA examination was created by the OECD
so the educational systems of its member countries
could be evaluated in a standardized and systematic
way. In these exams, students’ proficiency in
mathematics, science and reading is evaluated.
Countries outside the OECD are also invited to
take part in the examinations. The students taking
the examination are 15 years old.

22. The share of pupils below level 1 in the sample of
developing countries that take part in PISA. This is
the share of pupils without even a basic knowledge in
mathematics, who will most likely have the greatest
difficulty entering the labour market.
Former communist countries (estonia, latvia) tend to
have an excellent performance in PISA, as do the
students from the province of shanghai in china, the
republic of korea and singapore, all of which perform
better than the average of OECD countries

23. such as Mexico has about 20 per cent of students
below level 1, while others like Argentina, Brazil and
Colombia are closer to 40 per cent, which is quite
high. Panama, Peru and Qatar have around 50 per
cent of students faring very badly, while Kyrgyzstan
is the country with the lowest achievement level in
the sample. Countries with a high share of students
below the basic level will have serious problems
competing in the globalized world with the high
achievers.