Education and Economic Growth

 The Impact of Education on the Growth Of economy!

Up until recently, economists believed that physical capital was the most significant determinant of economic growth. They advised that developing countries should increase the rate at which physical capital is created in order to hasten the growth of the economy and raise people's standards of living. But during the past three decades, economic research has shown how important education is as a driver of economic growth. The development of people's abilities and knowledge is referred to as education.

The key to economic progress lies not only in the quantitative increase of educational opportunities but also in the qualitative enhancement of the kind of education provided to the labor force. Education has been referred to as human capital due to its substantial impact on economic development, and spending on people's education has been referred to as an investment in people or human capital.

Education and Economic

Numerous empirical studies on the sources of growth—or, in other words, the contributions made by different elements like physical capital, man-hours, (i.e., physical labor), education, etc.—conducted in developed countries, particularly the U.S.A., have demonstrated that education or the accumulation of human resources is a substantial factor of economic development.

For the United States between 1909 and 1949, according to Professor Solow, one of the first economists to measure the impact of human capital on economic growth, 57.5% of the increase in output per man hour could've been attributed to the residual factor, which reflects the effects of digital change and the improved performance in labor quality primarily as a result of education.

He calculated this residual factor, which accounts for the rise in total production due to the quantifiable inputs of labor and capital (man-hours). The residual factor, which indicated the impact of technical change and education—factors that are physically immeasurable—was then calculated by subtracting this amount from the overall production.

Denison calculated that an increase in employee input accounted for 32% of the growth in total national output between 1929 and 1982 in the United States, while an enhancement in productivity per employee was responsible for the remaining 68%.

The effects of wealth creation, technical change, economies of scale, and worker education were then quantified. Denison discovered that technical development contributed 28% of the increase in output owing to an increase in productivity growth, followed by capital formation (19%), education of the workforce (14%), economies of scale (9%), and capital formation (19%). Thus, it is evident that the combined contribution of technological advancement and education to the rise of the national output was 42%.

Both income and educational Expenses:

Another method of gauging the value of education is to examine the link between income and educational spending. Using this methodology, Schultz looked at the relationship between consumer spending and income as well as the relationship between education spending and the creation of physical capital in the United States from 1900 to 1956. His research found that when education spending was attempted to be expressed in terms of cash, "the resources committed to education climbed nearly three and half times comparative to spending power in dollars, (b) compared to the gross construction of capital investments in cash."

This suggests that across the period, the "income elasticity" of the quality of education was roughly 3.5, or, in these other terms, investing in education may be viewed as being 3.5 times more appealing than purchasing securities capital. But it should be remembered that  Schultz's estimates just hint at how important education is for economic growth.

In the study above, we stated that investing in education can be compared to investing in physical capital because both increase labor productivity, which in turn increases national revenue. Higher-income or improved earnings made by workers with more education have been seen as beneficial to the community as a whole as to private people. This is due to the fact that higher earnings are likely a reflection of increasing production and output, both in real and monetary terms.

Advantages of Education for Usage:

The advantages of investing in education, as well as how it affects organizational performance and national output, have been discussed above. However, financial gains are not the sole advantages of education. The benefits of education extend to the individual's consumption, as he may "enjoy" more education and experience greater fulfillment in his present and potential personal life.

If general societal welfare is based on the well-being of each of its constituents, then a rise in consumption due to an individual's greater education helps the community as a whole. We can calculate the spending advantages of education thanks to economic theory.

According to economic theory, the price a consumer has paid for a good or service is a good indicator of its marginal value to him. A person wouldn't have paid for something if he didn't think it was worth the money. In addition, a person would have purchased more products if he believed that the marginal benefit he was receiving outweighed the cost.

The relative values of various things are thus reflected in their relative prices, and the advantages of consumption that consumers obtain from consuming a variety of products would be indicated by multiplying that amount by the prices of those products.

However, it should be noted that prices in a free market system are affected by particular income distribution, the existence of monopolies, and flaws in the market structure, and do not, as a result, accurately reflect the marginal societal values of various items.

Although an accurate measure of the consumption advantages of education could be challenging to determine and has not yet been done so, this fact should not cause anyone to discount these benefits or the policy significance of education. It should be underlined that, in the new perspective, economic development encompasses not only a gain in output but also a rise in consumption and societal well-being. As a result, the benefits of education for consumption may also be viewed as benefits for development.