The Relationship between Higher Education and Economic Growth

By: Lee Wan Wei
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A large volume of empirical papers emphasised the importance of education in economic growth. The advancement of technology in this century has shown a worldwide shift in the focus of education level from primary to higher education as the economy is increasingly driven by knowledge. Higher education translates into equipping an individual with the necessary skills and knowledge for economic success. This dissertation aims to extend the research on education by investigating the relationship between higher education and economic growth from looking at 80 countries over the period 1980 to 2011. Additionally, the dissertation seeks to determine if primary and secondary education have a greater impact than higher education on growth. This is done through disaggregating education into primary, secondary and higher education. Fixed-effects panel estimation is employed in this analysis to account for the unobserved time-invariant heterogeneity between different countries. The empirical findings revealed a negative and statistically significant effect of higher education on the growth of real GDP per capita which is contrary to what one would expect. However, this puzzling finding is not surprising given that other empirical results also showed a negative effect of higher education on economic growth (McMahon, 1998; Holmes, 2013). Beine et al (2001) and Rogers (2003) attributed the deleterious effect of growth from higher education to rent-seeking activities and the emigration of highly-educated workers. Primary and secondary education also showed discouraging results. The negative and insignificant results could be from data and measurement issue as estimations are highly sensitive to data (Holmes, 2013), thereby affecting our results. Our findings also suggests that the role of human capital in economic growth does not seem to be consistent with Lucas (1988) theory as the production function fails to capture human capital when it is incorporated directly as an input.

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