Education, educational policy and growth

Storesletten, Kjetil and Zilibotti, Fabrizio (2000) Education, educational policy and growth. Swedish Economic Policy Review, 7 (1), 39-70.

Abstract

This paper reviews the recent theoretical and empirical literature that relates education to growth, and draws some lessons for the Swedish experience. First, the “human capital accumulation” approach is discussed: agents decide, at each moment of their lives, to forego time or resources to improve their future productivity. The quality of the educational system is argued to be a crucial determinant of the decision to invest in human capital and of the growth rate of the economy. Hence, qualified teachers and appropriate incentive schemes within the schooling sectors are important for the long-run performance of the economy. Next, the trade-off between basic innovation (promoted by a restricted subset of economic activities) and learning-by-doing (which occurs at a more diffuse level in the economy)is analysed. It is argued that the former can be fostered by investments in “elite” research institutions, while the latter depends on the average educational attainment of the working population. Finally, the relationship between education, growth and inequality is discussed. The second part of the paper analyses recent trends in educational attainments in Sweden. Data show that enrolment rates in tertiary education in Sweden have lagged behind the major industrialised countries during the 1980s. Quantitatively, however, this is unlikely to be a major explanation of the productivity slowdown experienced by Sweden after 1970. But it is emphasised that (i) low educational premiums may harm incentives for people to invest in human capital; and (ii) low relative wages and low-power incentive schemes for teachers may cause a deterioration in the quality of education with negative effects on long-run growth.

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