In Brief
Professor Larry Summers at the conference on Financing Higher Education and Economic Development in East Asia: [See the video of the whole speech (20 mins)]
Human capital plays a key role in the development of all economies. A decade ago, discussions of education and development tended to be categorised by focussing on the importance of primary and secondary services. Certainly primary and secondary education are both important elements of the sector – not least because they feed directly into the quality of higher levels of education. But the lessons of recent economic history also highlight both the importance of strong higher educational outcomes obtained through universities and of the need for delivering substantial economic support.
The current world economy is going to be increasingly dominated by knowledge based industries over the coming decades. Agricultural, industrial and technical revolution will all give way to increases in knowledge. Manufactures will continue to be displaced by services and salary differences between knowledge based and non-knowledge based industries will continue to rise. The widening of these economic differentials highlights the importance of investing in knowledge and getting the fundamentals of each country's higher education sector right.
Larry Summers is oversimplifying the relationship between human capital and the development of economies. Sure, we’re all on board promoting stronger higher educational outcomes but this still mostly comes from primary and secondary schooling inputs. It’s not university level – I wonder which countries’ recent economic histories he’s talking about.
The effects of human capital on growth are most evident at the primary and secondary level in middle-lower income developing countries and at the tertiary level in developed countries (Richardson 1997; Revoredo and Morisset 1999).
If we talk about East Asian, based on the literature survey that I did, human capital (as proxied by the education attainment) is necessary but it is not a sufficient condition to enhance economic growth.
Many empirical works couldnot find enough statistical evidence to conclude the relationship between humann capital and economic growth, neither at the primary and secondary level nor at the higher level of education.
But as the value of education has been widely accepted (also in Asian culture), at the micro-level, education has a strong effect on individual wage. Hence, the development of the education sector seems to be unavoidable.
Regarding to a question about which level of education is significant, I think it needs a further empirical work on individual country. An indication that human capital and economic growth have a two-way relationship suggests us to consider the development stage of an economy. The labour market in Viet Nam which is still in the transition phase might reguire lower average of education level than the market in Japan.
Risti Permani – University of Adelaide