Impact Of Education On Econmic Growth

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Introduction Education has always been seen to be an important factor in the process of generating economic growth. According to the White House (2002), the key to future economic growth lies in the education of children in developing countries. Thus, it is not hard to imagine that education has been a key target area for government spending across the world averaging 4.9% of GDP in 2000-2002 (United Nations) To most people it might seem to be the case that people with limited education might often find it difficult to function at all in advanced societies (Steven and Weale, 2003). If educated people earn more than those without, it should assume to be the same true of countries. Thus, Steven and Weale (2003) argue that “the process of education can be analysed as an investment decision”. The economic return of education is usually discussed from two perspectives. The first relates to macroeconomic theories which see education as a factor that improves the productively of workers in the economy. The second approach focuses on microeconomic theories which argue on the basis of individual incentives to invest in education and issues due to asymmetric information. The impacts of these two perspectives are diagrammed by Katharina Michaelowa of the Hamburg Institute for International Economics based on the key assumptions that 1) education results in gaining of knowledge, 2) demand within the economy is sufficient to consume higher levels of output resulting from productivity gains, 3) policies are responsive to meet the demands of economic growth. The objective of this paper is to survey the literatures on education and its effects on economic growth. Thus, the paper will focus on the first perspective and covers only the signalling or screening theory from the second perspective as micro-economic theories are more appropriately applied in the discussion of
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