Effectiveness of Education on Economic Development in Asia:

1

• Effectiveness of Education on Economic
  Development in Asia
• A New Policy Modelling Approach for Public
  Services Equalisation
• 18 Aug 2008Faculty of Economics,Thammasat
  University, Bangkok

2
Tran Van Hoa Professor and Director, Vietnam
and East Asia Summit Research ProgramCentre for
Strategic Economic StudiesVictoria University,
Melbourne, VIC 8001, AustraliaEmail
jimmy.tran_at_vu.edu.au Website http//www.staff.vu
.edu.au/CSESBL/
3
ABSTRACT

• The paper uses a new endogenous growth regression
  model to explore the impact of education on
  growth in China and India
• To inform debates on public services equalisation
  effectiveness and regional competitiveness policy
• Under increasing global economic integration,
  robust domestic reforms and damaging regional
  crises and natural disasters.

4
TREND IN MAJOR PUBLIC SERVICES CHINA
5
CHINA PUBLIC SERVICES HISTORICAL PATTERN

• Education and Health Largest
• Followed by Administrative Expenses
• Both are Parallel and Rising
• Rural Support Stable
• Pensions Payment Lowest and Slowly Rising
• Innovation, Policy Expenses Falling

6
TREND IN MAJOR PUBLIC SERVICES INDIA
7
INDIA PUBLIC SERVICES HISTORICAL PATTERN

• Energy Largest but Falling
• Education Low and Slowly Rising
• Health Peaked late 1990s but Falling in
  Mid-2000s
• Rural Support Stable but Falling

8
MEAN (1986-2005) SHARES OF MAJOR SERVICES CHINA
9
ITEMS OF NOTE CHINA

• Education and Health Largest
• Followed by Administrative Expenses
• Rural and Innovation-Science-Technology (IST)
  Almost Equal Shares
• New Tax Burden (Gao 2006)-gt Public Service
  Efficiency
• Research Focus What are Contributions of
  Education Health, Rural and IST Support to
  Chinas Growth?

10
MEAN (1992-2005) SHARES OF MAJOR SERVICES INDIA
11
ITEMS OF NOTE INDIA

• Education Health Expenditure Less Than Half of
  the Share in China
• Rural Support Similar Share as in China
• Are Indias Public Expenditures Efficient?
• Research Focus What are Contributions of
  Education Health, and Rural Support to Indias
  Growth?

12
DEVELOPMENT GROWTH PATHCHINA INDIA
13
EDUCATION DEVELOPMENT CAUSALILTY ISSUES

• Multitude of Growth Theories (Levine Renelt
  1992)
• Applied Nature of Economic Development (Krueger
  2007)
• Inherent Interdependent Characteristics of
  Activities in Development (Krueger 2007)
• Nonlinear Features of Development Causality
  Relationship (Minier 2007)

14
EXISTING CAUSALITY IMPACT METHODOLOGIES FOR
GROWTH

• Descriptive Analysis
• Correlative and no Testable Causality
• CGE
• Essentially confirmatory in nature
• Growth Regression
• No circular causality or endogeneity specified
• Limitations in Functional Form
• No Country-Specific Characteristics
• Credible Realism for Policy Weak

15
ENDOGENOUS EDUCATION-GROWTH THEORY

• Keynesian-SNA93 Income Identity Sources of
  Growth YCIGX-IM
• Endogenous Education-Growth Regression (TVH 2004,
  Edwards 2007)
• YY(E,R,FDI,S)
• EE(Y,FDI,X,W,S)
• RR(Y,FDI,X,W,S)
• Taylor Planar Approximations (TVH 1992, Baier
  Bergstrand 2008)
• Ya1a2Ea3Ra4FDIa5S u
• Eb1b2Yb3Xb4Wb5S e

16
Kydlands Data-Model Consistency Criterion
17
SUBSTANTIVE FINDINGSEDUCATION-GROWTH CAUSALITY
IN CHINA INDIA
18
ARE OUR FINDINGS CREDIBLE?MODELLING CHINA GDP
GDP/HEAD
19
ARE OUR FINDINGS CREDIBLE?MODELLING INDIA GDP
GDP/HEAD
20
ARE OUR FINDINGS CREDIBLE?MODELLING CHINA
INDIA EDUCATION EXPENDITURES
21
IMPLICATIONS FOR EDUCATION REFORMS PUBLIC
SERVICE EQUALISATION IN CHINA 1

• Education Health Strong negative contribution
• Rural Support Weak beneficial impact
• Innovation-Science-Technology Support Strong
  negative effect

22
IMPLICATIONS FOR EDUCATION REFORMS PUBLIC
SERVICE EQUALISATION IN CHINA 2

• Policy Implications (see also OECD WB 08)
• Support for Education Health Efficiency Reforms
• Support for More Rural Expenditure
• Support for Innovation, Science Technology
  Efficiency Reforms
• Need for research on Administrative impact on
  growth
• ODA Beneficial but weak impact on growth

23
IMPLICATIONS FOR CHINA INDIA REGIONAL
COMPETITIVENESS 1

• Indias more efficiency in education and health
  expenditures
• This is exacerbated by their much smaller shares
  in public service expenditure
• Indias slightly more efficiency in rural support
  contribution to growth
• This may be attenuated by Indias slightly higher
  public expenditure in rural programs

24
IMPLICATIONS FOR CHINA INDIA REGIONAL
COMPETITIVENESS 2

• In both countries, good reforms contribute far
  more to growth than expenditure on public
  services
• Indias good reforms achieve higher growth
  returns than Chinas.
• However, Chinas much higher efficiency in FDI
  utilisation (underscoring FDI-led growth)

25
IMPLICATIONS FOR INTERNATIONAL EDUCATION (BASIC
SERVICES) EQUALISATION

• OECD-WB Recommend Chinas education expenditure
  scale to reach OECD (24) level
• Our findings indicate that, while increasing
  Chinas expenditure on education is important,
  improving education efficiency is a higher
  priority
• Improving public expenditure share on education
  in India however improves its growth