Education and Economic Growth: A Reflection

The concept that investing in human resource can increase economic growth began with the thinking of Adam Smith and other classical economists, who emphasized the importance of investing in human skills. In 1960 Schultz (1961) and Denison (1962) showed that education contributed directly to the growth of national income through increasing the skills and productive capacity of the workforce. This discovery leads to the study of economic value in educational investment.

Image by Wokandapix from Pixabay 

In measuring the contribution of education to economic growth Schultz (1961) used the growth accounting approach and Denison (1962) used the rate of return to human capital. Both approaches are used to measure the contribution of education to economic growth both in developed countries and in developing countries. Based on the results of these calculations, according to Denison between 1930 and 1960, 23% of the growth rate of output in the U.S. due to increased labor education. Canada 25%, Belgium 14%, UK 12%, Argentina 16.5%, Malaysia 14.7%, Philippines 10.5%, Ghana 23.4%, Kenya 12.4% and Nigeria 16%. If we look at these results it can be concluded that increasing labor education can increase output growth for developed countries as well as in developing countries.

Other evidence showing a link between different aspects of human resource and economic growth was found through research conducted by the World Bank. Hicks's research (1980) showed that countries with high levels of human resource development will achieve faster economic growth. However, this relationship is not linear because there are many other factors that affect economic growth.

The measurement model suggested by Wheeler (1980) to measure the contribution of education and other human resource development to economic growth is a simultaneous model. In this model measured not only the effect directly but also indirectly (separating between cause and impact).  Although none of these studies can show what kind of education can have the most impact on productivity or economic growth, the results suggest that education financing should be considered a productive investment rather than just considered consumption.

Therefore, it is necessary to evaluate the opportunity cost of educational investment and compared to other investments (physical capital and social infrastructure). In addition, it is also necessary to calculate the internal efficiency and external effieciency of educational investment to determine the combination of investments at which level of education (elementary, secondary and high). It is the duty of state economists to conduct analysis and evaluation of educational investment, not to ignore the evidence that shows that education contributes to economic growth.

Education is not only viewed because of its impact on economic growth but because of the broader perspective of human resource development. Science and education are the main driving forces of economic development.

The importance of education in the nation-building process, not only needs to be considered by developing countries. Developed countries still view education as an essential part. The establishment of the national economic system is not because there are no economic institutions, but this happens because various educational provisions designed to prepare the younger generation who have the abilities, values, and attitudes necessary for the life of the state and nation are not pursued in the learning process or the socialization process in educational institutions.

Based on several studies conducted by the World Bank, showing that educational investment as a core hr development activity is proven to have had a very significant contribution to the level of economic benefits. Based on the findings of the study, that the economic profit (rate of return) of educational investment turned out to be higher than physical investment with an average ratio of 15.3% and 9.1%. This means that investing in education is a profitable endeavor, both socially and economically. Nevertheless, the reality proves that the government still has to be convinced and encouraged to increase spending to finance development in the field of education.

Based on the data above, education has a contribution to economic development. Human resources that have a good and high education will have high work productivity as well, so that in working (being an employee or entrepreneur) will provide high results as well and can bring or provide foreign exchange for the country through increasing economic growth.

The concept of human resource investment considers the importance of the relationship between education, work productivity, and economic growth. Education should be viewed not only because of its impact on economic growth but because of the broader perspective of hr development. Science and education are the main driving forces of economic development. Therefore, education investment should be taken seriously and the allocation of funds for education is really fulfilled considering the importance of education in educating the life of the nation.

Reference:

Delors, Jacques. 1996. Learning : The Treasure Within.  Perancis : UNESCO Publishing.

Harbison, Frederick and Charles A. Myers. 1965. Manpower and Education. USA : McGraw Hill Book Company. 

Psacharopoulos, George and Maureen Woodhall. 1985. Education for Development, An Analysis of Investment Choices. USA : A World Bank Publication.