Ahead Education, 24 Aug 2016
Many businesses, small or large, face this question every time they seek to finance their activities and inject cash into their economic machines. While “money for nothing” may apply to some musicians (if you played the guitar on the MTV in 1985), it usually comes at a cost for the firm seeking extra capital.
This cost is financially reflected by the weighted average cost of capital (WACC) -or how much financial cost a company is paying ... READ MORE
Education is commonly recognized as a direct way to save a lot of people from poverty and creation of employment opportunities, which eventually leads to economic welfare and growth.
As a generation receives primary, secondary, and higher education, not only its productive efficiency increases, but it would become capable of increasing the country's industrial capacity, therefore maximizing the possibility for trade, export, and the population's health levels.
The virtuous circle is applicable to all countries, developing and developed alike. It should be however noted that it is the developing countries that experience the highest growths in education-driven economic output. Developed countries, being already at mature levels of education, still benefit but a lower marginal rate.
According to Hanushek and Wossmann, theoretical literature provides three main channels through which education helps to enhance economic growth:
First, investment in education leads to the creation of human capital that makes a significant contribution to economic growth. Under the human capital, we understand the sum of all investments people contribute to themselves for improving their economic productivity and, consequently, earnings.
Investments in education and skill development could be considered as the beginning of the evolution of human capital. Improved people’s skills and competences allow them to use more effective production methods and adapt to technological process. Human capital in the form of school enrollment has a positive association with a real gross domestic product (GDP) per capita.
Second, education contributes to the innovative scope of the economy and to a new vision on new technologies and processes.
Third, education can facilitate the process of implementation of new technologies designed by other countries, which again helps the economy to grow. This was particularly the case in China, where a new industrial revolution took place right after the implementation of government-sponsored education.
Empirical research in different countries supports the theory that investment in education enhances economic growth. We will observe some examples where investment in education has proved to be the engine to economic growth.
We start with Australia where, according to a 2006 study by Giles, Matsushita and Siddique, the correlation of education to growth in real GDP per capita over the period of 1969-2003 was measured.
During this term, Australia’s per capita GDP increased by 1.9% yearly; it was estimated that 31% of this increase was directly linked to education. The results of the study state that, enrolments in vocational education and training, as well as higher education are crucial to economic growth.
This finding has important implications for policy making. For example, if the Australian government wants growth in coming years, it should make admissions to vocational and higher education institutions cheaper and more accessible. Similarly, a comparable correlation has been established in Greece through the research of Pegkas.
The next country in focus is Pakistan. The results of the research by Khattak and Khan in 2012 supported the view that education contributes to economic growth. This means that primary as well as secondary education contribute to real GDP per capita growth in Pakistan.
Based on these results, it is highly advised to make every possible effort for maintaining the universalization of primary education (UPE), since primary education adds input for secondary education, and since that program would quicken the pace of school.
There are still other external factors related to high rates of drop out, which still require to be addressed separately. Among which, poverty, social stratification, and fairly distributed economic development are key to sustain longer term educational goals.
According to several researchers, primary education has the highest impact on developing countries, while already developed countries rely more on the need for secondary and higher education. Other findings revealed that educating females has generally led to a marginally more profitable outcome. This was particularly the case in India, in which female education at all levels played an important role in the growth process.
In conclusion, the numerous evidence-based researches have undeniably linked economic development to education at all its levels. More specifically, an improvement in accessibility to primary education has lead to higher levels of health and productivity in non-technological sectors, while secondary and higher education improved the technological output of the related countries, in both manufacturing and services.
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