The Neoclassical Theory Of Education And Economic Growth

Adam Smith (1776) was the first proponent of the economic value of education. He emphasized on how education helps to increase the productivity of the labour force in various ways, including both general education and technical training. He was the one who introduced for the first time the concept of human capital. Later other well known economists (Malthus, 1798; Mill, 1848; Marx, 1878; Marshall, 1890; Schumpeter, 1934; Harrod, 1939 & Domar 1946; et al) placed special attention to the economic growth process. During the second half of the 20th century, the neoclassical theory of economic growth was developed, which forms the basis of all the models which are used today on economic analysis (Thirlwall, 2001). This theory, as advanced by Solow
Macro-studies have used different proxies of education (quantity and quality). The main proxies of the education quantity are measured by: a. schooling enrolment ratios (Barro, 1991; M-R-W, 1992; Levine and Renelt, 1992; et al), b. the average years of Education/Schooling (Hanushek and Woessmann, 2007; Krueger and Lindhal, 2001; Woessmann, 2007; et al), c. adult literacy rate (Romer, 1990; Durlauf and Johnson, 1995; et al), d. education spending. The education quality proxies are measured by: a. survival rates, b. repetition rates, c. student/teacher ratios, d. schooling life expectancy, e. trained teachers in primary education, f. education test scores and
The overall conclusion suggests the existence of a bidirectional or a unidirectional causal relationship between education quantity and economic growth. There however are, studies that find a weak or a negative effect of education quantity on economic growth (Islam, 1995; Bils and Klenow, 2000; Pritchett, 2001) and others that found no relation between education quantity and economic growth (Benhabib and Spiegel, 1994). More specifically, Krueger and Lindahl (2001) in their survey on education and economic growth found that “education is statistically significantly and positively associated with subsequent growth only for the countries with the lowest level of education”. Tsamadias and Pegkas (2012), have been investigating if the different proxies of human capital affect the estimations of education quantity on economic growth. The relationship between education quality and economic growth has been examined by a few studies. The studies of Hanushek and Kim (1995), Hanushek and Kimko (2000), Hanushek and Woessmann (2007), developed a measure of labour force quality based on cognitive skills in mathematics and science and found that cognitive skills have a strong and robust influence on economic growth. Barro (1999) employs data on student scores