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The returns to education: a review of the empirical macro-economic literature

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Author Info
Barbara Sianesi () (Institute for Fiscal Studies)

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Abstract

The idea of positive educational externalities is that the benefits of individually acquired education may not be restricted to the individual but might spill over to others as well, accruing at higher aggregation levels, in particular at the macro-economic one. We offer an extensive summary and a critical discussion of the empirical literature on the impact of human capital on macro- economic performance, with a particular focus on UK policy. Key findings include: (1) Taking the studies as a whole, there is compelling evidence that human capital increases productivity. Although there is an important theoretical distinction between the augmented neo-classical approach and the new growth theories, the empirical literature is still largely divided on whether the stock of education affects the long-run level or growth rate of the economy. A one-year increase in average education is found to raise the level of output per capita by between 3 and 6 percent according to augmented neo-classical specifications, while it would lead to an over 1 percentage point faster growth according to estimates from the new-growth theories. (2) Over the short-run planning horizon (4 years) the empirical estimates of the change in GDP for a given increase in the human capital stock are of similar orders of magnitude in the two approaches. (3) The impact of increases at different levels of edu-cation appear to depend on the level of a country's development, with tertiary/higher education being the most important for growth in OECD countries. (4) Education is found to yield additional indirect benefits to growth (in par-ticular, by stimulating physical capital investments and technological development and adoption). More preliminary evidence seems to indicate that type, quality and efficiency of education all matter for growth. The most pressing methodological problems are the measurement of human capital; systematic differences in the coefficient of education across countries (in particular between developing and developed countries) and reverse causality. We also make recommendations for future research priorities.

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Paper provided by Institute for Fiscal Studies in its series IFS Working Papers with number W02/05.

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Length: 82 pp
Date of creation: Mar 2002
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Handle: RePEc:ifs:ifsewp:02/05

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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  4. Benhabib, Jess & Spiegel, Mark M., 1994. "The role of human capital in economic development evidence from aggregate cross-country data," Journal of Monetary Economics, Elsevier, vol. 34(2), pages 143-173, October. [Downloadable!] (restricted)
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    Other versions:
  6. Jonathan Temple, 1999. "The New Growth Evidence," Journal of Economic Literature, American Economic Association, vol. 37(1), pages 112-156, March. [Downloadable!] (restricted)
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  11. Kevin Lee & M. Hashem Pesaran & Ron Smith, . "Growth and Convergence in a Multi-County empirical Stochastic Solow Model," Discussion Papers in Economics 96/14, Department of Economics, University of Leicester.
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  14. Peter Klenow & Andrés Rodríguez-Clare, 1997. "The Neoclassical Revival in Growth Economics: Has It Gone Too Far?," NBER Chapters, in: NBER Macroeconomics Annual 1997, Volume 12, pages 73-114 National Bureau of Economic Research, Inc. [Downloadable!]
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  19. Colm Harmon & Hessel Oosterbeek, 2000. "The Returns to Education: A Review of Evidence, Issues and Deficiencies in the Literature," CEE Discussion Papers 0005, Centre for the Economics of Education, LSE. [Downloadable!]
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  24. Eric A. Hanushek & Dongwook Kim, 1995. "Schooling, Labor Force Quality, and Economic Growth," NBER Working Papers 5399, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  27. Jonathan R. W. Temple, 1998. "Robustness tests of the augmented Solow model," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 13(4), pages 361-375. [Downloadable!]
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Miguel ST. Aubyn & Álvaro Pina, 2004. "Comparing Macroeconomic Returns on human and Public Capital: An Empirical Analysis of the Portuguese Case (1960-2001)," Working Papers 2004/07, Department of Economics at the School of Economics and Management (ISEG), Technical University of Lisbon.. [Downloadable!]
    Other versions:
  2. Channing Arndt & Sam Jones & Finn Tarp, 2006. "Aid and Development: The Mozambican Case," Discussion Papers 06-13, University of Copenhagen. Department of Economics. [Downloadable!]
  3. Alexander Muravyev, 2006. "Human Capital Externalities: Evidence from the Transition Economy of Russia," Discussion Papers of DIW Berlin 629, DIW Berlin, German Institute for Economic Research. [Downloadable!]
  4. Michael Peneder, 2007. "A sectoral taxonomy of educational intensity," Empirica, Springer, vol. 34(3), pages 189-212, July. [Downloadable!] (restricted)
  5. Miguel St. Aubyn & João Pereira, 2004. "What Level of Education Matters Most for Growth? Evidence from Portugal," Working Papers 2004/13, Department of Economics at the School of Economics and Management (ISEG), Technical University of Lisbon.. [Downloadable!]
    Other versions:
  6. Richard Nahuis & Henri de Groot, . "Rising Skill Premia: You ain't seen nothing yet?," CPB Discussion Papers 20, CPB Netherlands Bureau for Economic Policy Analysis. [Downloadable!]
    Other versions:
  7. Gustavo A. Crespi & Aldo Geuna & Lionel J. J. Nesta, 2006. "Labour Mobility of Academic Inventors. Career Decision and Knowledge Transfer," SPRU Electronic Working Paper Series 139, University of Sussex, SPRU - Science and Technology Policy Research. [Downloadable!]
  8. Paul Gregg & Emma Tominey, 2004. "The Wage Scar from Youth Unemployment," The Centre for Market and Public Organisation 04/097, Department of Economics, University of Bristol, UK. [Downloadable!]
  9. Sergio Scicchitano, 2004. "Complementarity Between Heterogeneous Human Capital And R&D: Can Job-Training Avoid Low Development Traps?," Working Papers 70, Sapienza University of Rome, Department of Public Economics. [Downloadable!]
  10. BARÓN, Juan David & PEREZ, Gerson Javier & ROWLAND, Peter, 2004. "A Regional Economic Policy for Colombia," REVISTA DE ECONOMÍA DEL ROSARIO, UNIVERSIDAD DEL ROSARIO - FACULTAD DE ECONOMÍA. [Downloadable!]
    Other versions:
  11. Sergio Scicchitano, 2007. "On the complementarity between on-the-job training and R and D: a brief overview," Economics Bulletin, Economics Bulletin, vol. 15(2), pages 1-11. [Downloadable!]
  12. Milenko Popovic, 2005. "Capital Augmenting and Labor Augmenting Approach in Measuring Contribution of Human Capital and Education to Economic Growth," Development and Comp Systems 0502002, EconWPA. [Downloadable!]
  13. Gustavo Crespi & Aldo Geuna & Lionel Nesta, 2007. "The mobility of university inventors in Europe," The Journal of Technology Transfer, Springer, vol. 32(3), pages 195-215, June. [Downloadable!] (restricted)
  14. Raj, Madhusudan, 2008. "State of Elementary Education in Public Schools of Gujarat: A Study of Schools Run by the Bharuch Municipality," MPRA Paper 10581, University Library of Munich, Germany. [Downloadable!]
  15. Grant Johnston, 2004. "Healthy, wealthy and wise? A review of the wider benefits of education," Treasury Working Paper Series 04/04, New Zealand Treasury. [Downloadable!]
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