Media Briefings

INVESTING IN HIGHER EDUCATION GIVES A BIG GROWTH BOOST TO POOR COUNTRIES

  • Published Date: March 2015

Poor countries should pay much more attention to raising their skilled human capital, according to research by Fabio Cerina and Fabio Manca to be presented at the Royal Economic Society’s 2015 annual conference. The new study shows that the returns to higher education are far higher in countries doing technology imitation – those that are poor and far from the so-called ‘technological frontier’ – than in rich countries.

The researchers report that:

• Developing nations can grow faster by increasing the speed at which they copy technologies coming from developed countries. To copy technologies, these countries need more workers with a university education in fields like engineering and other sciences.

• Between 1960 and 2000, a one percentage point increase in the share of tertiary educated workers in the population (approximately the distance between Morocco and Tunisia in 2000) increased productivity by 12% in developing countries. This was 1.5 times faster than in the group of OECD countries that saw a similar increase in tertiary education.

• While primary education is still important, developing nations that increase their share of technical workers see a clear productivity advantage, closing the gap with the technological leaders more quickly.

• Higher education is also important for rich countries to sustain their innovation activities and growth. But the advantage they have on developing countries may shrink considerably as investments are made in poor countries to spur tertiary education and develop technology adoption.

The authors comment:

‘Skilled human capital is not only important for innovation – the engine of rich countries’ growth – but even more for imitation – the engine of poor countries.

‘So it all boils down to igniting imitation activities in developing countries with the ‘right fuel’ – and this is higher education.

‘Reverse engineering, which stands as the basis of technology imitation, is a skill-demanding activity – and as the phrase suggests, it requires ‘engineers’ and skilled workers to be propelled.’

More…

Economic growth and prosperity is the objective of all countries and governments. Human capital is unarguably among the most important and acknowledged sources of such prosperity. Yet growth in the United States is driven by a very different ‘engine’ than that in Zimbabwe.

For a long time, it has been argued that particular types of human capital (skilled versus unskilled human capital) should be the basis of the different development strategies of rich and poor countries. Put simply, different engines may require very different types of fuel.

In particular, since poor countries barely perform any R&D activity and innovation, it has been argued that their development should be based on enhancing primary education (see the Millennium Development Goals) and little or no attention has been paid to the role of tertiary education for these countries.

This research shows that much more attention (and investments) should be devoted to increasing skilled human capital in poor and developing countries. Crucially, it shows that the returns to higher education are far higher in countries performing technology imitation and adoption (those that are poor and far from the so-called ‘technological frontier’) than in rich and developed ones.

The reason for this, which is backed up in the research by both theoretical and empirical evidence, is simple and lies in the fact that skilled human capital (a ‘noble fuel’) is not only important for innovation (the engine of rich countries’ growth) but, even more, for imitation (the engine of poor countries).

It all, hence, boils down to igniting imitation activities in developing countries with the ‘right fuel’ – and this is higher education. Reverse engineering, which stands as the basis of technology imitation, is a skill-demanding activity and, as the phrase suggests, it requires ‘engineers’ and skilled workers to be propelled.

Despite the importance of primary education, confirmed by this analysis too, poor countries that are able to increase the share of tertiary educated people in their workforce have comparatively done better (on average) than other (poor) competitors, closing the productivity gap with the technological leaders more quickly.

The results show that, on average for developing countries between 1960 and 2000, those that were able to increase the share of tertiary educated workers by one percentage point (approximately the distance between Morocco and Tunisia in 2000) also increased their productivity growth rate by 12%, catching up 1.5 times faster to the technological frontier than the group of OECD countries where a similar increase in tertiary education was experienced.

The quality of institutions has been shown to play fundamental role in enabling human capital to trigger growth (Benhabib and Spiegel, 2005; Manca, 2010) but these results are confirmed also when taking account of different institutional and regulatory frameworks across countries.

Higher education is also important for rich countries to sustain their innovation activities and growth, but the advantage they have over developing countries may considerably shrink as investments are made in poor countries to spur tertiary education and develop technology adoption.

ENDS


Contact

Fabio Cerina, CRENoS and University of Cagliari, fcerina@unica.it, +390706753765

References

Benhabib, J. and Spiegel M. (2005). ‘Human Capital and Technology Diffusion’, in Aghion P. and S. Durlauf (eds), Handbook of Economic Growth, Elsevier

Manca, F. (2010). ‘Technology catch-up and the role of institutions’, Journal of Macroeconomics, Volume 32, Issue 4, December 2010, Pages 1041–1053