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Introduction
Education can be defined as stock of skills, competencies, and productivity-
enhancing characteristics. Education involves a formal or informal process of
instructing people and depositing a capital wealth of knowledge inside of them. For
instance, when someone goes to school to train as an engineer, the process will involve
series of trainings, tests and other forms of practical and theoretical teachings aimed at
improving that person's knowledge. After the individual goes through this formal
training, he or she will help develop the economy through the application of the
knowledge gained from the training to various projects that will in turn lead to economic
dividends. A developed and educated society is the one that has enough manpower, and
each person occupies his or her rightful position to revolutionize the way people live.
The importance of education can be analyzed from women empowerment point of
view as well. Women education is penetratingly associated with the formation of
women’s identity, decision-making capability, mobility and contribution to the
socioeconomic development of household, community, and nation. For decades, in
developing patriarchal countries like Nepal men’s preference advocated for women’s
modest education. Hence, how especially education empowers women by enhancing
their active participation in the sustainable socioeconomic growth and human capital
development (by delaying marriage, managing family-size, increasing gross family
income and escalating literacy rate) needs to be studied. Education is fundamental to
promote agency, which expresses the capacity of rural poor to escape from poverty and
hunger with their own power. An educated is more likely to find a job, but has also,
ceteris paribus, a capacity to use more rationally the resources he or she owns.
Educated and informed people have more probability to select valuable objectives in life,
such as having stable access to food for their household. Even in this argument, there
is a gender factor (Sen, 1999). According to still Sen (1999), “female literacy is
unambiguous and statistically significant reducing the impact on under-five mortalities,
even after controlling for male literacy.”
➢ Education provides a foundation for development, the groundwork on which
much of our economic and social wellbeing is built.
➢ It is the key to increasing economic efficiency and social consistency.
➢ It increases the overall productivity and intellectual flexibility of the labor force.
➢ It helps to ensure that a country is competitive in world markets now
characterized by changing technologies and production methods.
Many development economists argued that more than the financial and other
productive resources, the human capital of a country, is the real determinant of growth
and development. The real wealth of the nation is its population as active agents that
apply their skills in production, manages enterprises, develop technology and utilize raw
materials for development.
A. Effects of Education on Economic Growth
Education or the development of human capital is a significant source of
economic growth.
Professor Solow who was one of the first economists to measure the
contribution of human capital to economic growth. He estimated that the growth in
output per man hour could be attributed to the residual factor which represents the
effect of the technological change and of the improvement in the quality of labour mainly
as a consequence of education.
He estimated this residual factor determining the increase in the total output on
account of the measurable inputs of capital and labour (man-hours). He then subtracted
this figure from the total output to get the contribution of residual factor which
represented the effect of education and technological change, the physically
immeasurable factors.
Denison, another American economist made further refinement in estimating
the contribution to economic growth of various factors. Denison tried to separate and
measure the contributions of various elements of ‘residual factor’.
He then measured the contributions of education of per worker, capital
formation, technological change and economies of scale.
Denison found that 28 per cent points of contribution to growth in output due to
growth in labour-productivity was due to technological change, 19 per cent points due
to capital formation and 14 per cent points due to education per workers, and 9 per cent
points due to economies of scale. It is thus clear that education and technological
progress together made 42 per cent (14 + 28) contribution to growth in national product.
The term human capital was used first used in 1960’s and 70’s, when Mincer
(1958), Goode (1959), Schultz (1961) and Becker (1975) gave different point of view
regarding the concept and formation of human capital, though it got importance by the
emergence of endogenous growth theory given by Lucas (1988) and Romer (1989, 1990).
Mankiw et al. (1992) used human capital in production function to justify higher
economic growth from higher investment in human capital. It plays a very crucial role
in the building of human capabilities and enhancing economic growth in which
investors also like to invest due to a stock of human capital. Education is the imperative
part of human competency and sovereignty (Sen, 1999). Kim & TeradaHagiwara (2010)
elaborated the importance of well-educated labor force in the diffusion and adoption of
new technology and new methods of production as found to have played a crucial role
in developing countries like Pakistan, that have a shortage of physical and human
capital (HDR, 2001; Adawo, 2011).
B. Effects of Education and Labor Productivity
Educational provisions within any given country represent one of the main
determinants of the composition and growth of that country’s output and exports and
constitute an important ingredient in a system’s capacity to borrow foreign technology
effectively.
Industries with higher education and training requirements tend to pay workers
higher wages. ... An economy's productivity rises as the number of educated workers
increases since skilled workers can perform tasks more efficiently.
Empirical evidence at both micro and macro levels further illuminates these
relationships.
At Micro level numerous studies indicate that increases in earnings are
associated with additional years of education, with the rate of return varying with high
level of education. The returns to primary schooling tend to be greater than returns to
secondary and tertiary education.
In agriculture, evidence suggests positive effects of education on productivity
among farmers using modern technologies, but less impact, as might be expected,
among those using traditional methods. In Thailand, farmers with four or more years of
schooling were three times more likely to adopt fertilizer and other modern inputs than
less educated farmers. Similarly, in Nepal, the completion of at least seven years of
schooling increased productivity in wheat by over a quarter, and in rice by 13%.
On the other hand, in macro level, the ‘new growth theories’ aim to endogenize
technical progress by incorporating some of these same effects, emphasizing education
as well as learning. The impact of education on the nature and growth of exports, which,
in turn, affect the aggregate growth rate, is another way in which human development
influences macro performance. The education and skills of a developing country’s labor
force influence the nature of its factor endowment and consequently the composition of
its trade.
The concept of social capital draws from various disciplines and sectors has
breathed new life into arguments concerning the role and standing of "the social aspects"
of development. There is an increasing awareness that community life and institutional
quality together could do better to enhance the capacity of societies, manage risk, accept
change, and grab opportunities. In the light of the mentioned problems, there is an
urgent need of skilled human resources, or educated think tanks, who are able to
understand and tackle with the given situation.
C. Effects of Education and Income/Earnings’
As education becomes more broadly based, low-income people are better able to
seek out economic opportunities. For example, a study of the relation between
schooling, income inequality and poverty in 18 countries found that one quarter of the
variation in workers’ incomes was accounted for by variations in schooling attainment;
it concludes that ‘clearly education is the variable with the strongest impact on income
equality’.
Poverty, unstable and undergrowth of GDP, unemployment, and high age
dependency ratio are common issues in the most of the developing countries such as
Asia, Africa, and Latin America. Data clearly shows that more than 1.3 billion people
earn less than US $1 per day, people in these countries have been afflicted by poverty
and hunger over long periods (Sinnathurai, 2013). He clearly scrutinizes the nexus
among poverty, economic growth, employment, and dependency ratio in Asia, Africa,
and Latin America and found that poverty, poor and unstable growth of GDP,
unemployment, and high age dependency ratio are common issues in the most of the
people of developing countries have been afflicted by poverty and hunger over the long
period. Similarly, he also displays that lower the labor productivity impacts lower the
economic growth and higher the unemployment, and poverty. On the other hand, there
is high dependency ratio in a family or in the case of the developing countries leads to
lower productivity of such labor force. Thus, this proves the inverse relationship between
poverty and employment and also poverty and economic growth. Schultz (2009)
identifies that higher rate of economic growth pays the way the sustained and stable
increase in productive capacity, employment opportunities with rising productivity are
generated in the economy. That’s why this empowers the country to absorb more
employees in the production and allied activities and thereby decreasing the
unemployment rate. These conditions help including poor people in the industrial
activities and thus, are benefitted in turning productive labor force finally helping to
standardize their lifestyle.
Methodology
There are many reasons why education is important, this report focuses on its
contribution to economic growth and outcomes. Education ‘can be defined as the stock
of skills, competencies, and other productivity-enhancing characteristics’ (WEF 2016).
In general, education—as a critical component of a country’s human capital—increases
the efficiency of each individual worker and helps economies to move up the value chain
beyond manual tasks or simple production processes (WEF 2016). Human capital has
long been considered the most distinctive feature of the economic system and further
work has proven the impact of education on productivity growth empirically.
Human capital formation (a population’s education and health status) plays a
significant role in a country’s economic development. Better education leads not only to
higher individual income but is also a necessary (although not always sufficient)
precondition for long-term economic growth (IIASA 2008). Woessmann 2015 surveys the
most recent empirical evidence stating that it shows the crucial role of education for
individual and societal prosperity. Education is a leading determinant of economic
growth, employment, and earnings. Ignoring the economic dimension of education
would endanger the prosperity of future generations, with widespread repercussions for
poverty, social exclusion, and sustainability of social security systems (Woessman
2015). For every US$1 spent on education, as much as US$10 to US$15 can be
generated in economic growth (UNESCO 2012). If 75% more 15-year-olds in forty-six of
the world’s poorest countries were to reach the lowest OECD benchmark for
mathematics, economic growth could improve by 2.1% from its baseline and 104 million
people could be lifted out of extreme poverty (UNESCO 2012).
Results and Discussion
Investment in secondary education provides a clear boost to economic
development, much more than can be achieved by universal primary education alone.
Hence, the focus of the United Nations Millennium Development Goals on universal
primary education was important but insufficient. Universal primary education must be
complemented with the goal of ensuring broad sections of the population have at least
completed junior secondary education (IIASA 2008). The Sustainable Development
Goals (SDGs) also have education targets including that ‘by 2030, ensure that all girls
and boys complete free, equitable and quality primary and secondary education leading
to relevant and effective learning outcomes’. This shows more of an awareness of the
importance of secondary education. Only broad-based secondary education and
universal primary education is likely to give poor countries the human capital boost
necessary to bring large segments of the population out of poverty. For more
industrialised countries, tertiary education of younger adults also plays a key role in
economic growth (IIASA 2008).
Additionally, health and survival rates, fertility levels and even the quality of a
country’s governance and institutions can plausibly be assumed to be linked to a
country’s levels of educational attainment (IIASA 2008). While completion of a basic
education is associated with higher quality health indicators, progress on the other
MDGs were influenced even more by the completion of a secondary education, and
especially by women, for example in sub‐Saharan Africa, an estimated 1.8 million
children’s lives could have been saved in 2008 if their mothers had at least secondary
education – a 41% reduction (UNESCO 2011). Women with a secondary education seek
out antenatal care and better medical treatment in general, take more measures to
improve their children’s health, delay marriage and have fewer children (thus reducing
maternal mortality), are more likely to send their children to school, and have greater
economic opportunities that will alleviate poverty and hunger (UNESCO 2010).
Understanding how education influences a person’s future is not straightforward.
For several decades, economists have measured the effects of skills on work
opportunities mainly by looking at the difference in earnings between people with
different levels of education. These studies originally analysed the apparently simple
relationship between wages, years of schooling and years of experience, controlling for
basic demographic characteristics such as gender and age, to estimate the rate of return
to education – the percentage increase in wages for each year of school (UNESCO 2012).
The most recent compilation of studies from around the world suggests that not only
are returns to education high in general, but the return to post-primary education is
higher than for primary schooling (Colclough et al., 2010). Yet there are wide variations
in these patterns among countries. One reason for the mixed evidence is that the
number of years of education is an imperfect measure of what young people learn.
Simply completing primary and lower secondary education does not necessarily mean
obtaining foundation skills. Also acquiring basic literacy and numeracy alone is not
enough to get good jobs (UNESCO 2012).
PRIMARY EDUCATION
A considerable amount of evidence on the positive economic effects of a
completed primary education, especially for those working in agriculture, has been
generated over the past 40 years (UNESCO 2010). A study which modelled the impact
of attainment in fifty countries between 1960 and 2000 found that an additional year of
schooling can increase a person’s earnings by 10% and average GDP by 0.37% annually
(Hanushek et al., 2008). A different cross-country study claimed that each additional
year of education increases income by 10% (Psacharopoulos and Patrinos, 2004).
Generally, economic rates of return to individuals’ and societies’ investment in primary
education have been reported to be higher in low income countries than in high income
countries and to be higher for primary education than for secondary or tertiary
education (UNESCO 2010). The Commission on Growth and Development (2008)
concluded that social returns probably exceed private returns through the broader
contribution to society of educated individuals.
An influential early study which analysed the effects of primary education on
agricultural production in 13 countries found that the average annual gain in
production associated with four years of schooling was 8.7% (Lockheed, Jamison and
Lau, 1980). A more recent paper by de Muro and Burchi (2007) examined the
relationship between primary education and food insecurity across 48 countries. The
results showed that doubling the attendance rates in primary education for rural
populations would reduce levels of food insecurity by between 20% and 24%. Some
papers which measured the effect on income of the quality of education showed that
these are higher than previously understood (Hanushek and Wossman, 2007). The
incidence of poverty across households is closely linked to educational attainment
(UNESCO 2010). For example, a study found that in Papua New Guinea, people living
in households headed by a person with no formal education constitute more than 50%
of the poor while in the Republic of Serbia, the poverty level of households where the
