Relationship between Education and Economic Development

"Education is what makes a nation either live as a free, independent, glorious, high society or leave it to bondage and misery."

Mustafa Kemal ATATÜRK

What is Economic Development?

Development, in general terms, is the attempt of the political power to change the structure of society by following certain economic policies in order to increase the level of welfare of individuals. Today, the level of development of countries is measured not only by the amount of national income but also by their educational, social, cultural and political status.

Economic development refers to a process that includes the increase in national income at constant prices in a certain period compared to the previous period, as well as structural changes in economic, social, cultural and political fields. Economic development means expanding and improving education, health and nutrition services, increasing the quantity as well as the quality of existing production factors, ensuring sectoral and regional integration (improving inter-sectoral relations and eliminating regional development differences), prioritizing rationality over emotionality in economic decisions, and changing the social and cultural fabric.

In the process of socio-economic development and growth, obtaining the highest efficiency through the rational use of existing resources, technological development and ensuring social welfare are the main objectives in developed and developing countries. The realization of these objectives and the achievement of efficiency in development depend not only on land and capital factors, but also on the labor factor of human beings and the improvement of the quality of this factor. It is the investments in human capital and physical capital that will ensure growth and structural change in the realization of socio-economic development. As a matter of fact, the development of a country depends on physical capital investments and, more importantly, on human capital investments.

Education is an Important Human Capital Investment

Human capital investments consist of expenditures on education, health and nutrition. Among these expenditures, education is the most important human capital investment.

There is a close relationship between economic development and education. An education system that meets the requirements of the economy is extremely important for development. The level of development in a country can be expressed by the level of income per capita (GNI) as well as other economic and social indicators such as population growth rate, birth rate, mortality rate, energy consumption per capita, life expectancy and schooling rates. Among these, other education indicators such as the schooling rate, the share of national income allocated to education, the distribution of the literate population between primary, secondary and higher education, the participation rates of this population in employment, and the level of vocational and technical education have a very important place in determining both the level of national development and international development differences.

Japan, the USA, France, the UK, and even South Korea, Taiwan, Hong-Kong, Singapore and some other countries, which have made the greatest progress in the field of economy and human resources in recent years, have reached their current levels of development with the education and health investments they made in the human factor at the very beginning of the development process in order to ensure the productive use of labor. In addition, technological development also requires the training of the human factor. In this respect, the solution of the development problem largely depends on the importance to be given to education and the education policies to be followed, which ensure more effective use of the labor factor in the production process.

Important Studies on the Relationship between Education and Economic Development

In development literature, Nurkse's vicious circle theory explains why per capita income is low in less developed countries. According to this theory, countries are "poor because they are poor". According to this theory, there are various reasons that constitute the vicious circle. In this approach to explaining the cause of underdevelopment, in addition to the supply and demand structure of the economy, the level of health and education in the country, the type of small-scale production, unemployment and industrial structure can also create a vicious circle.

One of the causes of underdevelopment is the existence of a vicious circle of education. Accordingly, inadequate level of education leads to low productivity in education and low productivity leads to low level of national income. The low level of national income, on the other hand, causes the per capita income level to remain at a low level, indicating the underdevelopment of the economy. The low level of GNI leads to the inability to raise the level of education again, thus creating a vicious circle. In this case, the lower the education level of a country, the more inadequate its GNI is.

Is there an improvement in education as a result of economic development, or does investing in education lead to a certain level of development? There is no definite answer to this question. Both development and education are elements that affect each other positively in a cause-and-effect relationship. However, in less developed countries with low GNI, the share of education in Gross National Product (GNP) is low, while in developed countries with high GNI, the share of education in GNP is higher. However, it can be seen from the historical and cultural development of today's developed economies that the impact of education on development is more effective than the impact of development on education. Japan, which has a significant power in the world today, is a clear example of this. Japan's allocation of large funds for education in every period has contributed greatly to the country's development process. When we look at the development process of Germany, it is seen that the most important reason for the development of the industry of this country is the importance given to vocational and technical education. As a result of investing in education and other human capital elements, today's developed countries have high GNI and the share of education in GNP.

When the relationship between education and socio-economic development is examined, it is seen that education raises national income and thus the level of development by raising the qualifications of the labor force, making the organization more effective and improving the social, cultural and institutional structure. There are various studies that demonstrate this positive relationship between education and economic development.

Schultz investigated the role of human capital investments in the process of economic growth through micro and macro cost-benefit analysis. By calculating the rates of return for various levels of education, Schultz argued that the income of male workers in the US between 18-64 life years varies according to their level of education. According to 1930 data, the lifetime income of men aged 18-64 with 4 or more years of higher education was $39,000 higher than the lifetime income of those with secondary education. According to the macro cost-benefit analysis method, Schultz explains 70% of the increase in per capita income in the US between 1929 and 1957 with the increase in formal education per working person.

According to Denison, the two most important factors among the 31 variables that determine economic development are general education and technological innovation. Denison investigated the relationship between development and education level. According to Denison, the share of education in growth was 11% in the early 1900s, 23% in the 1929-1957 period and increased after this period. Denison also concluded that national income in the USA increased by 3% between 1930-1960 and that 68% of this increase was due to the increase in the level of education. According to Denison's findings, an increase in the quality of labor force is more effective than an increase in the quality of machinery and equipment, and the rate of growth and technological innovation are largely dependent on education.

Harbison and Myers prepared a "composite index" showing the development of manpower resources. This index was used to rank 75 countries according to the degree of development in their resources. In the calculations made, it was found that the link between the increase in the degree of development and schooling increased. In short, the relationship between education and economic development is stronger in high-income countries than in low-income countries. Moreover, the highest correlation between per capita income and educational attainment is found in secondary and tertiary education.

Another issue that empirical studies analyzing education as human capital are interested in is the relationship between the cost of education and productivity. According to these studies, education has a major role in ensuring productivity. Studies by Hansen (1963), Becker (1964) and Hanoch (1967) in the US, Blaug (1967) in the UK, and Carnoy (1967) in Mexico and other Latin American countries have shown that the rate of return on education as an investment is largely similar to that of investment in physical capital. In all these studies, they have tried to obtain results to find the economic value of education based on the income differences of individuals with different levels of education. The economic value of education has been tried to be explained not only in terms of individuals but also in terms of society and it has been argued that an increase in the level of education in a country will increase total production.

According to the studies examining the relationship between the economic structure and the level of education appropriate to the structure of the economy, there is a close relationship between the level of GNI and the level of education. While no specific relationship was found between secondary and primary education and income level, it was concluded that the relationship between higher education and income level is quite strong. In addition, changes in the economic structure of a society also lead to changes in the educational structure. In developing economies, the establishment of new industries, adaptation to new technologies, etc. bring up the need for people who are educated in accordance with the requirements of the economy and whose cognitive and psychomotor skills are improved.

As can be seen from the studies, education is of great importance in terms of ensuring economic development in the direction of increasing economic growth. In addition to reaching a certain level of education, it is also important to create a qualified education supply in line with economic demand in order to ensure efficiency in development.

Conclusion

The human element is at the heart of the economic development process. Economic growth and structural change can only be realized through the importance to be given to people. Therefore, the size and quality of investments to be made in human capital in a society is the most important element that determines the level of development of that society together with physical capital investments. Investments in human capital determine the place of the human factor in the production process and thus the level of development of the country and its position in the international arena. Education, which is the most important of human investments, is a phenomenon whose effectiveness is proven and accepted in terms of development, technological development and catching up with international competition. 

Education investments have a continuously increasing return. As investments in education increase, national income also increases. Individuals earn more income as they move from lower to higher levels of education.

Education investments increase the efficiency of other investments. Education and research expenditures in various fields lead to the emergence of many innovations.

"The Impact of Education on Economic Development in Turkey" will be analyzed in a separate article.

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