What effect does a country”s education system have on its economic performance? Most analysis of this crucial issue has focused on the impact on growth of the average years of schooling children go through. But in new research published in the latest issue of the Economic Journal, Amparo Castelló and Rafael Doménech reveal that there is another vitally important dimension: the distribution of education – who is educated and to what extent. Their results, which derive from data on 108 different countries for the period 1960-99, show that educational inequality has a significant negative effect on economic growth rates. They conclude that: ”Education inequality is not only a social problem but also an economic one since countries with a more egalitarian distribution of education grow on average more than those with greater inequality.”
The clear implication is that policies to promote growth should not only take account of the average years of schooling but also the distribution of education. The research also reveals that there are strong negative relationships between educational inequality and the growth of country”s education system, and between educational inequality and life expectancy.
Nevertheless, there has been a notable process of convergence in education inequality indicators between 1960-99 although differences in the distribution of education are still considerable. This convergence can be partially exp lained by the efforts made in many countries to eradicate illiteracy.
The mechanism through which educational inequality leads to lower growth is through its effect on investment rates. The researchers find that those countries that in 1960 had greater inequality in the distribution of education have experienced lower investment rates – in both physical and human capital – than countries with less inequality. These lower investment rates have in turn meant lower growth rates.
The indicators of education inequality the researchers use are obtained in a similar way to standard income inequality measures, using information about the proportions of population with different levels of education. The data show clearly that education distribution matters because in spite of having the same average schooling years in the population over 15 years of age and a similar distribution of income, countries differ significantly in the distribution of education. For example, according to recent World Bank figures, in the 1980s, India and Indonesia, both highly populated countries, had similar levels of income inequality.
They also had similar levels of average years of schooling: approximately 3.6 years of formal education. But the distribution of education in the two countries was quite different: the proportion of the population with no schooling and, at the other extreme, with a university education was much higher in India than in Indonesia.
Rafael Doménech is at the University of Valencia, Spain. Amparo Castello is at Universidad Carlos III de Madrid.
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