Social Equality Education, Social Equality, and Economic Growth: A View of the Landscape Thorvaldur...

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

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+ +

In ves tm en t x E d u ca tion

G row th+ +

Arthur Lewis: x is trade, stable politics, good weather

Then Solow came along and said: growth is exogenous

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 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 fla tion E d u ca tion

G row th+

+––

– 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 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

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

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 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

0 20 40 60 80

Gini coefficient

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

y = -2,3106x + 51,494

R2 = 0,1318

0 2 4 6 8 10Public expenditure on education 1980-97 (% of GNP)

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

y = 0,295x - 2,5403

R2 = 0,0675

0 2 4 6 8 10

Public expenditure on education 1980-97 (% of GNP)

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

y = -0,8641x + 49,129

R2 = 0,1291

0 5 10 15 20Years of schooling for females 1980-97

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

y = 0,2305x - 3,3678

R2 = 0,2376

0 5 10 15 20

Years of schooling for females 1980-97

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

y = -0,1931x + 50,557

R2 = 0,3245

0 20 40 60 80 100 120Secondary-school enrolment 1980-98

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

y = 0,0377x - 2,9036

R2 = 0,3424

0 20 40 60 80 100 120

Secondary-school enrolment 1980-98 (%)

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

y = -0,0005x2 + 0,0897x - 3,7212

R2 = 0,3835

0 20 40 60 80 100 120

Secondary-school enrolment 1980-98 (%)

Diminishing returns to education: The additional benefit from education becomes smaller as enrolment increases

r = 0.69

The KuznetsKuznets curve

y = -3,8188x2 + 57,614x - 170,97

R2 = 0,2292

5 6 7 8 9 10 11Logarithm of initial income

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

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

20.4220.42

(13.13)(13.13) -0.71-0.71

(4.50)(4.50) 0.720.72

-0.16-0.16

(4.97)(4.97) 0.310.31

-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

-0.20-0.20

(3.97)(3.97) 0.150.15

20.4220.42

(13.13)(13.13) -0.71-0.71

(4.50)(4.50) 0.720.72

-0.16-0.16

(4.97)(4.97) 0.310.31

Direct effect of natural capital on growth is -0.06

-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

-0.20-0.20

(3.97)(3.97) 0.150.15

20.4220.42

(13.13)(13.13) -0.71-0.71

(4.50)(4.50) 0.720.72

-0.16-0.16

(4.97)(4.97) 0.310.31

Indirect effect through investment is -0.20·0.13 -0.03

-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

-0.20-0.20

(3.97)(3.97) 0.150.15

20.4220.42

(13.13)(13.13) -0.71-0.71

(4.50)(4.50) 0.720.72

-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

-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

-0.20-0.20

(3.97)(3.97) 0.150.15

20.4220.42

(13.13)(13.13) -0.71-0.71

(4.50)(4.50) 0.720.72

-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

-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

-0.20-0.20

(3.97)(3.97) 0.150.15

20.4220.42

(13.13)(13.13) -0.71-0.71

(4.50)(4.50) 0.720.72

-0.16-0.16

(4.97)(4.97) 0.310.31

-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

-0.20-0.20

(3.97)(3.97) 0.150.15

20.4220.42

(13.13)(13.13) -0.71-0.71

(4.50)(4.50) 0.720.72

-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

-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

-0.20-0.20

(3.97)(3.97) 0.150.15

20.4220.42

(13.13)(13.13) -0.71-0.71

(4.50)(4.50) 0.720.72

-0.16-0.16

(4.97)(4.97) 0.310.31

Indirect effect through inequality is (-0.16)·(-0.03) 0.005

-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

-0.20-0.20

(3.97)(3.97) 0.150.15

20.4220.42

(13.13)(13.13) -0.71-0.71

(4.50)(4.50) 0.720.72

-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

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

Social Equality Education, Social Equality, and Economic Growth: A View of the Landscape Thorvaldur...

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