The transition of education a cross-country macro analysis

Abstract

In cross-country data, income and key education variables are strongly correlated. This is mainly due to the long-run transition from traditional to modern society. The paper looks at a flow and a stock variable. The flow is the E-share of GDP for the annual public budget for education. When it is adjusted for the number of school-age children, it becomes the EC-share. The stock is School, which is the number of years the average person has been in school. Both variables are due to demand and supply. People and firms demand human capital needed by production. Governments supply education to increase production. The demand factor works better to explain the strong correlation. Countries with too much or too little education are identified by the deviations from the transition curves for education. Neither deviation has a clear impact on the growth rate. The explanation proposed uses the equilibrium properties of the transition path, where too much education is of no use, while too little is compensated by the private sector.