The role of education in enhancing productivity growth Philippe Aghion
Schumpeterian Paradigm Long run growth driven by innovation Innovation driven by entrepreneurial investments (R&D ) which are themselves motivated by the prospect of monopoly rents Innovation involves creative destruction: new innovations replace old technologies
Schumpeterian Paradigm Frontier innovation and imitation requires different sets of policies and institutions Innovation requires: removing all obstacles to competition and creative destruction even greater emphasis on higher education
Education and growth Human capital as a factor of production (Lucas, Mankiw-Romer-Weil) Human capital as a mean to speed up catch-up growth and to foster innovation (Nelson-Phelps)
Enhancing productivity growth in emerging market economies Foster technology transfers Reallocate factors Improve management practices Education fosters those three levers of catch-up growth!!
Wide variation in management: US and Japan leading, developing nations trailing (includes 2013 wave) United States Japan Germany Sweden Canada Great Britain France Italy Australia Poland Mexico Singapore New Zealand Northern Ireland Portugal Republic of Ireland Greece Chile China Brazil Argentina India Colombia Kenya Zambia Nicaragua Ethiopia Ghana Tanzania N=80 N=50 N=74 N=122 N=87 N=1289 N=176 N=658 N=403 N=412 N=1208 N=632 N=313 N=454 N=364 N=515 N=306 N=150 N=136 N=307 N=160 N=269 N=581 N=755 Africa N=1111 N=558 Asia N=840 N=127 Australasia N=120 Europe Latin America North America 2 2.5 3 3.5 Average Management Scores, Manufacturing
3.5 2.5 Average management scores across countries are strongly correlated with GDP per capita 3 2 Africa Australasia Asia Europe Latin America North America management x log of GDP PPP per capita United States Japan Germany Sweden Canada ItalyFrance United Kingdom Australia Kenya India China Brazil Colombia MexicoPoland Chile Argentina New Zealand Singapore Portugal Republic of Ireland Greece Zambia Ethiopia Ghana Nicaragua Tanzania 7 8 9 10 11 Log of 10-yr average GDP based on PPP per capita GDP(Current int'l $ - Billions) Note: April 2013, World Economic Outlook (IMF) indicator Data includes 2013 survey wave as of 9/20/2013. Africa data not yet included in the paper
Why state intervention in education? Externalities Contemporaneous Integenerational Growth externalities Credit constraints
Basic education Quality, not just quantity, of investment matters Hence the complementarity between investment and governance Illustration PISA and growth
PISA and growth
Years of schooling and growth
The Finnish experience Same chances for all No early selection but instead tutorship system Invest in teacher quality (Chetty et al.) Good compromise between national standards and local autonomy
Teaching methods Avoid too vertical Algan et al (2013) Avoid too horizontal Flawed Swedish reform
Thus. Productivity growth in EMEs is fostered by better performing schools Performance hinges on a combination between teacher quality, efficient tutorship and good synergy between central and local levels
Enhancing innovation-based growth - Investment in higher education - Full liberalization of product market (creative destruction) - Full liberalization of labor market (flexibility and training)
Importance of graduate education and research
Cross-country analysis
Effect on growth rate (in percentage points) Shock to research university expenditure per student in the cohort 2 1.75 1.5 Effect on Growth Rates for Shock to Research-Type Education Investment Frontier State, High Autonomy vs. Low Autonomy Universities Affected cohorts are entering the labor force All affected cohorts are in the labor force Affected cohorts are leaving the labor force 2000 1750 1500 Effect on Growth Rate with High Autonomy Universities 1.25 1 0.75 1250 1000 750 Effect on Growth Rate with Low Autonomy Universities 0.5 0.25 0 500 250 0 0 3 6 9 12 15 18 21 Year Investment in Research University Education Per Person in the Cohort
Country Performance Index 250 Figure 2: Relationship between expenditure per student and country performance 200 SE 150 100 50 0 DE UK NE BE US FI AU DE FR IE IT CZ GR HU ES 0 5 10 15 20 25 30 35 40 Expenditure per student, 1 000 euros
Thus. Innovation-based growth requires performing universities Performance hinges on a combination between finance, autonomy, and competition for grants
Conclusion Catch-up growth requires high-quality primary and secondary education Innovation-based growth also requires good research and graduate education Complementarity between funding and governance Importance of evaluation tests (PISA, Shanghai, )
Inclusive growth Good-quality schooling also enhances social mobility and reduces inequality..thereby favoring more inclusive growth!! So does more competition and entry!
35 40 45 50 55 Upward Mobility (Y 25 ) Upward Mobility vs. Inequality in CZ The Great Gatsby Curve Within the U.S. ρ = -0.475 (0.089) $40,000 $50,000 $60,000 $70,000 $80,000 Interquartile Range (p25-75) in Mean Household Parent Income 1996-2000