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(In)equality in Education and Economic Development

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  • Petra Sauer

    ()
    (Department of Economics, Vienna University of Economics and Business)

  • Martin Zagler

    ()
    (Department of Economics, Vienna University of Economics and Business)

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    Abstract

    This paper investigates the relationship between economic development and the average level of education as well as the degree of inequality in the distribution of education, respectively. Approaching this question in a dynamic panel over 60 years and 143 countries with a system GMM estimator reveals strong support for the inclusion of an interaction term between the education Gini coeffcient and average years of schooling, indicating the existence of nonlinear effects. We contribute to the literature in providing strong evidence that more schooling is good for economic growth - irrespective of its distribution - but that the coeffcient is variable and substantially declining in inequality. On the other hand, inequality is positively related to economic growth for low average levels of education, whereas highly educated countries exhibit a statistically insignificant negative relationship between inequality and economic growth. From this it follows that at least a slight increase in the degree of inequality is necessary in order to haul initially poor and low educated economies out of the poverty trap. However, as economies become educated, the effect of educational inequality mainly works indirectly. Accordingly, countries that show greater educational inequality experience lower macro economic returns to education than more equal economies, on average.

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    Bibliographic Info

    Paper provided by Vienna University of Economics, Department of Economics in its series Department of Economics Working Papers with number wuwp163.

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    Date of creation: Jan 2014
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    Handle: RePEc:wiw:wiwwuw:wuwp163

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    Keywords: education; economic growth; distribution of education;

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    2. Oded Galor & Omer Moav, 2004. "From Physical to Human Capital Accumulation: Inequality and the Process of Development," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 71(4), pages 1001-1026, October.
    3. Robert J. Barro & Jong-Wha Lee, 2000. "International Data on Educational Attainment Updates and Implications," NBER Working Papers 7911, National Bureau of Economic Research, Inc.
    4. Garcia-Penalosa, Cecilia & Aghion, Philippe & Caroli, Eve, 1999. "Inequality and Economic Growth: The Perspective of the New Growth Theories," Economics Papers from University Paris Dauphine 123456789/10091, Paris Dauphine University.
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    7. Glomm, Gerhard & Ravikumar, B, 1992. "Public versus Private Investment in Human Capital Endogenous Growth and Income Inequality," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 100(4), pages 818-34, August.
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    14. Peter J. Klenow & Mark Bils, 2000. "Does Schooling Cause Growth?," American Economic Review, American Economic Association, American Economic Association, vol. 90(5), pages 1160-1183, December.
    15. DE LA CROIX, David & DOEPKE, Matthias, . "Inequality and growth: why differential fertility matters," CORE Discussion Papers RP, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) -1676, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    16. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, Elsevier, vol. 22(1), pages 3-42, July.
    17. Petra Sauer & Martin Zagler, 2012. "Economic Growth And The Quantity And Distribution Of Education: A Survey," Journal of Economic Surveys, Wiley Blackwell, Wiley Blackwell, vol. 26(5), pages 933-951, December.
    18. Oded Galor, 2009. "Inequality and Economic Development: An Overview," Working Papers 2009-3, Brown University, Department of Economics.
    19. Thomas, Vinod & Wang, Yan & Fan, Xibo, 2001. "Measuring education inequality - Gini coefficients of education," Policy Research Working Paper Series 2525, The World Bank.
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