Abstract
This study articulates the interaction among institutional governance, education and economic growth. Given the current pursuit of education policy reforms and knowledge economy around the world, it is of policy relevance to theoretically analyze the main mechanisms by which the macroeconomic impact of education on growth (and economic development) occurs. Our theoretical model demonstrates how incentives offered by the government affect human capital accumulation which ultimately engenders positive economic development externalities. We articulate two main channels through which education affects economic growth. The first channel highlights direct positive effect of educational quality on the incentive to accumulate human capital by individuals, which makes them more productive. The second channel appears in the explicit function of the economic growth rate. As a policy implication, we have shown that the growth rate depends on the rate of return on human capital or that this rate of return itself depends on the quality of governance, which further increases growth. As a result, institutional quality has a double dividend, which suggests considerable benefits to educational reforms.
Highlights
The literature on the quantifiable measurement of educational return or performance at the microeconomic level has been developed considerably
We respect to the first or direct channel, good corporate governance tends to encourage individuals to invest in long lengths of study which involves strong human capital accumulation and directly affects the growth rate
This study has articulated the interaction among institutional governance, education and economic growth
Summary
The literature on the quantifiable measurement of educational return or performance at the microeconomic level has been developed considerably. The decision to extend the number of schooling years results from an arbitrage in which at equilibrium, every individual is indifferent in the choice between two potential options: the option to continue his/her studies or the option to immediately enter the labour market This choice is influenced by the teachings of the human capital theory, developed by [1]. Social infrastructure plays a fundamental role in the incentives for human capital accumulation [4] The impact of this set of educational externalities is deduced from the analysis of the educational performance at the macroeconomic level. A seminal analysis of the macroeconomic impact of education on growth has been provided by neo-classical growth models ([5] [6]) These authors have shown empirically from cross-sectional data that, human capital proxied by the rate of scholarly enrollment practically plays the same role in the production function as physical capital.
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