THE EDUCATIONAS A DETERMINANT FACTOR IN ECONOMIC GROWTH. THE ECUADORIAN CASE (1960-2019)

Abstract

This paper studies the factors driving the Ecuadorian economic growth through the analysis of the education relevance measured as human capital for the period 1960-2019. By providing a characterization of the business cycle in Ecuador we were able to describe the economic growth trend, cyclical component and also the expansions and recessions periods. To this end, we also analyzed the labor share in the economy to observe the evolution of human capital importance in the income distribution.
 
 Secondly, a multiple regression model was designed to quantify the correlation between the economic growth rate and the evolution of human capital. The main findingsare that human capital and commodity prices have been relevant in explaining the economic growth, i.e., are the main source of increase in the GDP. To complement the analysis ant to stablish the importance of public policies for the betterment of education, a theoretical framework was designed to identify how the government spending and investment in education contribute for the human capital to increase over time.The results show that both government spending and investment are strongly correlated to increases in human capital index.
 
 Finally, we performed a statistical growth accounting exercise to quantify the relative importance of the different factors explaining output growth: inputs accumulation (extensive growth) and technological progress (intensive growth). By decomposing the labor between increase in workers and improving of human capital human capital we can isolate the effects of education in economic growth.
 
 Thus, for the period 1960-2019, for the Cobb-Douglas aggregate production function the average contribution of capital and labor were1.66%and 1.53% respectively points to the average annual output growth of 4.04%, whilehuman capital is accountable for 0.43%.It is also noticeable that TFP has been responsible for 0.40%, almost the same amount of the human capital. On the other hand, the augmented production function indicates that the isolated contribution of human capital was 0.25, while capital and labor were 1.14% and 1.26% respectively.The results obtained confirm the importance that the accumulation in physical capital and employment had played in explaining per capita output growth during the last decades, whereas the contribution of total factor productivity has been more modest. Human capital has also been a relevant factor in explaining the evolution of production, precisely because it is a developing economy that started from lower levels of human capital.