Impact Of Higher Education On Economic Growth

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Impact Of Higher Education On Economic Growth

Impact Of Higher Education On Economic Growth

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Written by: Paravee Maneejuk Paravee Maneejuk Scilit Google Scholar 1, 2, * and Woraphon Yamaka Woraphon Yamaka Scilit Google Scholar 1, 2

Submitted Date: 5 December 2020 / Revised Date: 2 January 2021 / Accepted Date: 5 January 2021 / Published Date: 7 January 2021

Higher Education Sustainability Initiative

This study analyzed the non-linear effects of education, specifically higher education, on economic growth in ASEAN-5 countries (i.e. Thailand, Indonesia, Malaysia, Singapore and the Philippines) over the period 2000-2018. The effects of education on economic growth are assessed through a variety of education indicators, including public expenditure on higher education per student, enrollment rates at primary, secondary and tertiary levels, educated workforce and further education, and a new indicator of unemployment rates. This study constructs non-linear regression models (time-series convolution regression and panel convolution regression) to investigate the convolutional effects of education on the economic growth of each country and the ASEAN-5 region, respectively. There are three main findings. First, the non-linear effects of government expenditure per higher education student on economic growth for the ASEAN-5 region are confirmed. However, the effects do not obey the law of diminishing returns. Secondly, our findings suggest that the increase in unemployment of highly educated workers can positively or negatively affect economic growth, which requires appropriate policy to deal with the negative effects. Finally, enrollment rates in secondary and higher education can contribute to ASEAN-5’s economic growth (both at the individual and regional levels). However, regional analysis reveals that the effects of higher education become twice as strong when enrollment rates are above a certain level (an inflection point). Therefore, we can conclude that secondary education enrollment rates positively affect economic growth; but higher education is the key to future growth and sustainability.

Economists have begun to pay renewed attention to the role of human capital in economic growth in recent years. Previous studies generally treat education as a simple measurement of human capital and attempt to examine the effects of education on economic growth. While the education-growth link has been widely discussed, many recent studies pay more attention to higher education levels and attempt to investigate its economic growth impact. This is because higher education is seen as one of the key factors driving economic growth and competitiveness for every country. Basic education (both primary and secondary) can be sufficient for simple production of goods and services and allows workers to use technology in the workplace. On the other hand, higher education is more likely to produce graduates who will become working people equipped with the potential to invent new technology and help transform the country into a knowledge-based economy. Higher education provides technology and innovation and brings highly skilled workers to the labor market, thereby increasing economic growth.

Many economists have shown evidence supporting the potential impact of higher education in both developing and developed economies (e.g., [1, 2, 3]). However, relatively few studies focus on how higher education is expanded and used [4, 5]. According to the literature, some previous studies measure the impact of higher education through research and development (see [6, 7, 8]). However, in this study, the relationship between higher education and economic growth is re-investigated. We attempt to fill the literature gap by including a workforce with a higher education degree (as an indicator of higher education expansion) in our analysis. This study also introduces a new measure of utilization of higher education: unemployment at the further education level, as we believe that the contribution of higher education to the economy may be related to the jobs available for graduates. Employment is a platform where highly skilled workers can demonstrate their potential to lead the economy into future growth. On the other hand, if those who invest in skills do not have the opportunity to find a good job, this can result in a dead loss.

Impact Of Higher Education On Economic Growth

In addition to the issue of measurement, this study also emphasizes how the effects of education on growth are modeled. Most of the existing literature generally uses the linear model, which can be a good approximation and fit the theories. However, the relationship between education and economic growth may be non-linear [8]. Investigation of the nonlinear relationship between these two variables is quite limited. Only a few studies focus on nonlinear cases [9, 10, 11, 12, 13]. One of the recent studies on this topic, Maneejuk, Yamaka and Sriboonchitta [14], points out that the linear model may miss an important nonlinear relationship. Therefore, in this study, potentially nonlinear relationships will be examined using the kink regression method.

Pdf] Higher Education And Economic Development In Africa: The Case Of Cameroon

In the regression inflection model, the regression function is continuous but the slope has a discontinuity at the inflection point. This inflection point is a turning point that occurs when there is a structural change in the relationship between variables. Our analysis shows that the effects of education on various indicators may not be linear or constant over time. Impacts may increase after reaching a certain level of development or may decrease as returns decline. Therefore, this study can reveal the economic outlook resulting from structural change after education indicators reach the breaking point. To provide a new explanation of the effects of education on economic growth under different education regimes, we need to go beyond the classical linear model. This study also shows whether education positively affects economic growth. To estimate this model, ridge estimation is performed to address multicollinearity and sample size issues in our education-growth model. The discussion and reasons for using the ridge estimator will be explained in the next section.

This study pays special attention to the ASEAN-5 countries consisting of Thailand, Indonesia, Malaysia, Singapore and the Philippines. These five countries are considered the leading countries of the group due to their GDP size and relatively high level of economic development. They have different cultures, lifestyles and languages. However, ASEAN-5 countries attach importance to education in driving economic growth. For this reason, they planned to improve the education system and its quality together and tried to bring the education level of each member country to the same standard. However, the quality of education is still significantly different and unequal between countries. In the relevant literature, there are only a few studies examining the role of education, especially higher education, in ASEAN-5 economies. Therefore, it may be difficult to produce evidence on this issue and to reach a conclusion regarding the effects of higher education in this field on economic growth.

The main focus of this article is to analyze the non-linear impact of higher education on economic growth in ASEAN-5. The main contributions of our study to the existing literature are essentially threefold. First, this study considers the expansion of higher education together with the stock of education and investment. Second, although the effects of higher education on economic growth have been considered, very few studies use a nonlinear model to analyze this issue; There are no studies investigating the distorted effects of each education indicator on economic growth. Therefore, this study uses the convolutional regression model to investigate the convolutional effects of education indicators on economic growth in ASEAN-5 countries to fill the gap in the literature. Third, this is the first attempt to apply the ridge estimator to fit the convolution regression model to solve the data limitation and multicollinearity issues in our empirical model.

The organization of this article is as follows. Following the introduction, Chapter 2 presents a literature review on the measurement of education and its impact on economic growth. Section 3 then describes the econometric methodology. Section 4 provides a description of the data. Section 5 shows the empirical results and discussion. Finally, Chapter 6 presents conclusions and policy recommendations.

Negative Growth: Definition And Economic Impact

The modern human capital theory proposed by Schultz [15] provides fundamental support for analyzing the impact of education on human resources.

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