Education and economic development

Education contributes to economic development in many ways. An educated labor force can use new technologies raising the productivity and competitiveness of firms. Education is also essential for the creation of new technologies. A better educated labor force is more flexible and mobile.

Economic studies across many countries and periods show that the greatest benefit for development comes from primary education. At that level, students become literate and develop basic math skills that allow them to participate in the economy. This raises their incomes and lowers income inequality.

Increased access to higher levels of education is also important but the benefits are smaller. The benefits from strong higher education become important as countries approach the technological frontier and their development depends on producing new technologies.

Better education improves health outcomes and girl’s education in particular strengthens reproductive health. More broadly, better education helps strengthen the democratic processes and improve governance.

Various measures for education, such as the percent of teenagers who are enrolled in secondary schooling, are routinely included in statistical models that explain economic growth across countries and over time. The education variable is almost always “statistically significant”, i.e. there is substantial empirical evidence that education contributes to economic growth.

Notice the large differences in literacy rates across countries.

Notice that the level of development closely matches the literacy rates in the first chart.
Of course, it is possible that the causality runs in the other direction - richer countries have better education because they can pay for it. So, we can't say if better education contributes to economic development or economic development contributes to better education.

To deal with that problem, economists investigate whether the level of education in a country now, e.g. this year, contributes to economic growth in the future years. They don't study whether better education now is related to a higher level of economic development now. That way, the causality runs only from education to economic growth. We can conclude that better education contributes to economic development.

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