Does a More Educated Populace Really Drive Economic Growth?

Conventional wisdom suggests that a country wishing to grow its GDP should look to the number of highly educated persons in its population. The relationship between highly-educated populace and economic growth is considered so well established that not many people have even looked into how true it is —  until now. Garrett Jones of the Library of Economics and Liberty looked at the relationship between years of education and economic growth and found, to his surprise, that there wasn’t one.

In performing his statistical experiment, Garrett was emulating the methodology used by James D. Hamilton and Josefina Monteagubo of the University of California at San Diego who ran a similar analysis and found similar results. Although there were some countries which showed impressive GDP growth when they boosted their average years of education, overall the trendline appeared to have been sloping slightly downwards.

Some might look at these results and say, “Higher education actually is great for entire countries, but these studies just couldn’t discern that greatness. After all, correlation isn’t causation.”

But that claim creates its own puzzle: If raising education really is so fantastic for countries, why can’t we find nation-level evidence of that?  We can easily find evidence that switching to faster money growth usually predicts higher inflation, that switching to more market-oriented institutions predicts faster economic growth.  The correlations show up just fine there–so why is data-torturing required when countries switch to pro-education policies?

Although education spending hasn’t been the main issue being discussed in the run-up to next week’s election, both candidates have insisted that future economic prosperity in America depends on expanding access to higher education. It is a popular position with voters of both parties, and both candidates have expressed support for it in the past. Yet the latest findings clearly raise questions about how cost-efficient additional investment in higher education would be over the long run — Questions that need to be asked if the U.S. is, in Garrett’s words, to commit several percentage points of GDP to the goal.

In a world of opportunity cost, “Let’s give it a try: It can’t hurt” should be a punchline. At our current state of knowledge, there seems to be little nation-level evidence that raising education levels in a country raises that country’s economic growth rate.

According to the Hamilton/Monteagubo analysis, instead of education, the best bang for the buck for economic growth would be to increase capital spending and bring down population levels. That probably isn’t rousing enough to make for a good stump speech, but it has the advantage of being true.