Public versus Private Education in Leveraging Long-Run Growth

There is strong evidence that school quality, complemented by the quality of institutional arrangements, is one of the most important determinants of a country’s long-run economic growth. Thus, understanding the role that private and public schools play in this relationship is highly important for both scholars and policymakers. We develop an endogenous growth model to study the effects of different education financing modes on long-run economic growth. We distinguish between public and private education provision by explicitly modeling their differing levels of efficiency based on the distinct characteristics associated with each mode of financing, incorporating their intrinsic features as pointed out by the empirical literature and their predicted effects on quality. By allowing us to model a wide range of policy scenarios commonly observed in practice, our framework shows that, under a plausible characterization of the educational conditions prevailing in many Western countries, the interplay between institutional and socio-educational factors shaping the efficiency of both types of education gives public systems a greater advantage in promoting long-run economic growth.