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Investment in education: Some lessons from the international evidence for the Baltic states

  • Gundlach, Erich

The international empirical evidence on the economics of education reveals one central insight and two puzzles, which are all relevant for the case of the Baltic States. The central insight is that social rates of return to education tend to be higher than the social opportunity costs of capital, except for the case of higher education. Based on this microeconomic evidence, the case for public investment in education is well founded, especially at the primary and the secondary levels. The first puzzle is that at the macroeconomic level, the presumed positive link between increases in educational attainment and income growth is difficult to detect. One reason is that a high rate of absorption of well-educated workers by the government sector, typical for many developing countries, is likely to reduce the long-run growth rate. The second puzzle is that there is no clear link between higher spending on educational inputs and higher educational output in the form of improved performance of pupils. As it seems, higher spending on education is not sufficient to improve performance as long as inefficiencies in the schooling system remain. For the Baltic States, three basic lessons emerge from the international evidence: First, public investment in higher education does not show up as a top priority from a social point of view; second, the macroeconomic return to education could turn out to be low if better educated workers predominantly end up in the relatively large government sectors typical for the Baltic States. Third, the productivity of schooling could probably be improved, for instance by a different allocation of resources within the education sector. Most likely, such an outcome would require a fundamental reform of the schooling system itself, not only in the Baltic States.

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Paper provided by Kiel Institute for the World Economy (IfW) in its series Kiel Discussion Papers with number 333.

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Date of creation: 1999
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Handle: RePEc:zbw:ifwkdp:333
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  1. Malcolm Knight & Norman Loayza & Delano Villanueva, 1993. "Testing the Neoclassical Theory of Economic Growth: A Panel Data Approach," IMF Staff Papers, Palgrave Macmillan, vol. 40(3), pages 512-541, September.
  2. Gundlach, Erich & Rudman, Desmond & Wößmann, Ludger, 1998. "Second thoughts on development accounting," Kiel Working Papers 895, Kiel Institute for the World Economy.
  3. Mikael Lindahl & Alan B. Krueger, 2001. "Education for Growth: Why and for Whom?," Journal of Economic Literature, American Economic Association, vol. 39(4), pages 1101-1136, December.
  4. Lee, Jong-Wha & Barro, Robert J, 2001. "Schooling Quality in a Cross-Section of Countries," Economica, London School of Economics and Political Science, vol. 68(272), pages 465-88, November.
  5. Eric A. Hanushek & Dongwook Kim, 1995. "Schooling, Labor Force Quality, and Economic Growth," NBER Working Papers 5399, National Bureau of Economic Research, Inc.
  6. 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.
  7. Gundlach, Erich, 1994. "The role of human capital in economic growth: new results and alternative interpretations," Kiel Working Papers 659, Kiel Institute for the World Economy.
  8. Mark Bils & Peter J. Klenow, 1998. "Does Schooling Cause Growth or the Other Way Around?," NBER Working Papers 6393, National Bureau of Economic Research, Inc.
  9. Pritchett, Lant & Filmer, Deon, 1999. "What education production functions really show: a positive theory of education expenditures," Economics of Education Review, Elsevier, vol. 18(2), pages 223-239, April.
  10. Douglas Gollin, 2002. "Getting Income Shares Right," Journal of Political Economy, University of Chicago Press, vol. 110(2), pages 458-474, April.
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