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The Influence of Educational Quality
on Economic Prosperity
Carlos Rymer
Research and Quantitative Methods
MPA-Environmental Science and Policy
Columbia University
May 2009
1
For most of the last half-century, governments have believed that by increasing
their expenditures on educational quantity (i.e. how much participation in
education they can achieve as a percentage of the population), they can ensure high
levels of economic growth. While some research on existing data has made the
connection for some countries, it does not fully explain the relationship. The
established consensus that policies designed to increase educational expenditures
fuel economic prosperity has left out the role that educational quality also plays in
producing citizens that can compete in a globalized, competitive world economy.
This study looked at data from 85 countries of mixed GDP levels to assess what
role educational quality plays on levels of economic prosperity. Regression analysis
shows that educational quantity by itself does not sufficiently explain economic
prosperity, while quantity combined with quality has a significant correlation to
economic prosperity, supporting the hypothesis that educational quantity by itself
is not enough to ensure that a country can develop economically.
ince the emergence of
development literature in the
1960’s, countries have been
designing educational policies aimed at
preparing citizens to better contribute to
the country’s well-being. In doing so,
much attention has been given to
education in quantity terms. In this
sense, education expenditures are more
about increasing resources in order to
accommodate more students. The goal
has largely been to ensure that students
stay in school for as long as possible
until they are ready to enter the labor
market. Among countries where
economic growth has coincided with
SIntroduction
2
educational policies based on this
notion, a consensus has grown that in
fact educational expenditures to
increase quantity pays off in terms of
economic prosperity.
Recently, however, research has
shown that while expenditures on
increasing resources to accommodate
more students is important, it is not
enough to ensure that students become
high-value citizens who can add social
and economic value to a given country.
Particularly in a more competitive and
globalized world economy, it has
become more noticeable the idea that
educational quality contributes
significantly to societal well-being.
Citizens are no longer expected to
simply complete school; increasingly,
they are expected to demonstrate that
they have the skills necessary to meet
the needs of organizations or
government agencies offering more
competitive goods and services.
In this study, the link between
educational quality and economic
prosperity is assessed. While much
research has focused on the relationship
between educational quantity and
economic prosperity, this study
analyzed the effect that educational
quality also has on economic prosperity,
particularly in the last two decades, a
period in which the world economy has
been much more globalized and
competitive than ever before. First,
existing leading literature is reviewed to
see where much of it has been focused
over the last decade. Then, statistical
analyses are carried out to a) determine
3
the relationship of educational quantity
and quality to economic prosperity
among countries separately and b)
determine the combined effect of
educational quantity and quality on
economic prosperity. By doing this, it
was possible to determine whether or
not educational quality is in fact a major
player in a country’s potential for
economic and social prosperity.
here is a broad consensus
on the fact that well-
designed educational policy
can effectively spur economic
prosperity. This consensus puts forth
that developed economies largely
depend on the availability of well-
trained, educated individuals who can
add innovative and problem-solving
value to firms. In addition, the breadth
and depth of research and development
at educational institutions is directly
related to the prosperity of the private
sector and consequently to human well-
being (Wolf, 2004). Researchers refer to
the commitment to education by
governments of economically
prosperous countries in pointing out
that education is fundamental to
economic growth. In turn, this has led
various countries to adopt policies that
increase the participation rate in higher
TLiterature Review
4
education as a way of increasing
economic growth.
In the political sense, education
refers to the preparation for life,
particularly for individual fulfillment,
civic participation, and the workplace,
elements that can be associated with
economic growth and democracy.
Education must aim to prepare
individuals for the workplace by
providing them with skills necessary to
produce goods and services, but also
help individuals grow personally to
enhance society’s social capital (Winch,
2002). In this sense, education is the
means by which individuals in society
are better prepared to fuel improved
human well-being through higher-
paying jobs, innovation, and the
provision of social benefits.
Nonetheless, recent research
suggests that simply spending more on
education may not necessarily translate
into economic growth. This may be
particularly true in cases where higher
wages can also increase business costs
without providing much more output.
The number of years in school, it has
been shown, is not sufficient to
guarantee an improved citizenry that is
capable of improving human well-being
across a country. As a result, a focus on
quantity, especially through target-
driven policy, can have significant
negative effects on quality (Wolf, 2004).
In turn, this can lead to societal losses as
resources are spent on keeping people
in schools but not on building human
capital to drive economic growth.
5
A 2007 study conducted by the
World Bank shows that while
educational quantity is significant, such
significance pales in comparison to
educational quality. The authors agree
that a focus on access to education by
governments has achieved important
results, but they also show that it is
“ultimately the degree to which
schooling fosters cognitive skills and
facilitates the acquisition of professional
skills that matters to development”
(Hanushek and Wobmann, 2007). The
study looked at countries with test
scores as a proxy to test the correlation
between educational quantity and
economic prosperity among several
dozen countries.
Cognitive skills have not just
been strongly associated with economic
growth, but also to income earnings
across a population and therefore
income distribution. International
comparisons have shown that there is a
significant gap in educational quality
between developed and developing
countries, making matters worse when
you only consider educational
attainment in developing countries as a
measure of educational success. In the
long term, this suggests that
governments must begin to focus more
on restructuring educational institutions
to improve quality in addition to
increasing educational access
(Hanushek and Wobmann, 2007).
6
The significance of educational
quality, measured by the outcome that
students should be prepared for a
competitive and knowledge-oriented
world economy, can also be shown in
studies that relate literacy to health
outcomes. For example, a 2006 study on
low-income populations with diabetes
showed that literacy mediated the
relationship between access to
education and diabetes control. In this
case, knowledge of key health terms led
to an increase in human well-being
because citizens were capable of using
cognitive skills to detect and control
diabetes (Schillinger et. al, 2006).
The trend in the world economy
towards increased competitiveness has
made it even more urgent for quality to
be a key focus of government
educational policies. Today’s
knowledge-based economies have been
successful in achieving economic
prosperity because they’ve been able to
train a workforce in diverse fields that
are foreign to less prosperous countries
and therefore represent a competitive
advantage (Warrington, 2008).
With some developing countries
closing the gap on educational quality
with some developed countries, the
impact educational quality can have on
competitiveness has become more
noticeable (Bernasek, 2005). With
educational quality becoming more
important in the years ahead,
governments will have to begin
designing policies to achieve greater
results than simply school attainment.
7
his study looks at existing
data from the United
Nations Educational,
Scientific, and Cultural Organization for
85 countries. The data sets (Figure 2)
used measure 1) educational quantity, 2)
educational quality, and 3) economic
prosperity. Figure 1 below shows the
measures used to predict these
variables.
The data were analyzed using
linear regression to determine the
strength of association between the two
independent variables (educational
quantity and quality) and the dependent
variable (economic prosperity).
Additionally, ANOVA tests were
performed on each independent
variable with the dependent variable to
find the level of significance of any
association. Finally, an ANOVA test was
performed using the combined effects of
educational quantity and quality.
The hypothesis tested in this study was
the following:
Educational quality plays a significant
role in a nation’s economic prosperity.
This hypothesis is intended to
help fill the gap in information about
educational quality and economic
prosperity by reinforcing recent
research that attempted to answer the
same question using other data.
TMethodology
Figure 1. Variable Predictors
Variable Measure
Educational
Quantity
Government
Expenditures/GDP
Educational
Quality
Teacher-Student Ratio
Economic
Prosperity
GDP/Capita
8
he linear regression
performed on these variables
showed that for the 85
countries chosen in this study, 1)
educational quantity has a weak
correlation with economic prosperity (r =
0.153); 2) educational quality has a
relatively strong correlation with
economic prosperity (r = 0.373), and 3)
educational quantity and quality combine
to have a stronger effect on economic
prosperity (r = 0.405)using Pearson’s r.
Moreover, both educational
quality and the combined effect of the
two independent variables are
significantly correlated to economic
prosperity (F < 0.001). Figures 3 and 4
show the linear regression running
through the data for each of the
independent variables graphed along the
dependent variable (see Appendix for
other figures).
T
2.5 5.0 7.5 10.0 12.5
Spending/GDP
0
25000
50000
75000
100000
GDP/Cap
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GDP/Cap = 3073.66 * SpendingGDP
Results
10.0 20.0 30.0 40.0
Teacher-Student Ratio
0
25000
50000
75000
100000
GDP/Cap
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GDP/Cap = 769.68 * TeacherStudentRatio
Figure 4. Student-Teacher Ratio
Linear Regression
Figure 3. Education Spending Linear
Regression
9
he results reinforce
conclusions made from
recent research showing that
educational quality plays a significant
role in achieving high economic
prosperity. While previous research
focused on test scores available in a
handful of countries, this study focused
on more universally available data to
further close the gap in statistical analysis
showing the link between educational
quality and economic prosperity.
The linear regression performed
on the data suggest that educational
quantity, measured by government
educational expenditure as a percentage
of GDP, is not a good predictor of
economic prosperity. The fact that other
research has shown that educational
quantity, measured by school attainment
and participation, does in fact correlate
with economic prosperity suggests that
government educational expenditure as
percentage of GDP is not a good measure
of educational quantity.
Nonetheless, the analysis
performed clearly shows that educational
quality, as measured by the student-
teacher ratio, does strongly correlate with
economic prosperity. Further research
should use better predictors of
educational quantity to better assess its
effect on economic prosperity when
combined with measures of educational
quality. Such research would help refine
these results and reinforce the tested
hypothesis.
T
Discussion
10
he consensus held by most
governments regarding
educational policy should
begin to change in the coming decades.
While it is true that increasing access to
education is important and has been the
focus of many governments, it is not
enough to ensure that education plays a
pivotal role in the economic development
of a nation.
New research now suggests that
there is enough evidence supporting the
hypothesis that educational quality plays
a more significant role than educational
quantity in promoting economic
development. The results of this
assessment support that hypothesis and
lead to the following conclusions:
TConclusions
1. Educational quantity by itself
does not adequately predict
the effect that government
educational policies have on
economic prosperity;
2. Educational quality is a strong
and significant predictor of a
nation’s economic prosperity;
and
3. Educational quality must be
considered as part of the
package of government
educational policies if the goal
is achieving high economic
prosperity.
11
Bernasek, Anna. 2005. What’s the Return
on Education? The New York Times.
December 11, 2005. Available at:
http://www.nytimes.com/2005/12/11/busi
ness/yourmoney/11view.html?_r=1&scp=
7&sq=education%20and%20economic%20
growth&st=cse
Hanushek, Eric A. and Wobmann,
Ludger. 2007. Education Quality and
Economic Growth. World Bank.
Hanushek, Eric A. and Wobmann,
Ludger. 2007. The Role of School
Improvement in Economic Development.
World Bank.
Schillinger, Dean et al. 2006. Does Literacy
Mediate the Relationship Between Education
and Health Outcomes? A Study of a Low-
Income Population with Diabetes. Public
Health Reports 121: 245-254.
Warrington, Molly. 2008. Decisions and
transitions: meeting the needs of the
‘knowledge economy.’ Government and
Policy 26: 924-937.
Winch, Christopher. The Economic Aims of
Education. Journal of Philosophy of
Education 36 (1): 101-117.
Wolf, Alison. 2004. Education and
Economic Performance: Simplistic Theories
and Their Policy Consequences. Oxford
Review of Economic Policy 20 (2): 315-
333.
Figure 2. Original Data
Country Student-Teacher Ratio GDP/Cap Spending/GDP
Andorra 10.9 $43,504 1.7
Anguilla 12.5 $18,007 4.0
Armenia 8.7 $3,057 2.7
Aruba 14.2 $25,253 4.8
Austria 12.1 $44,652 5.4
Azerbaijan 8.4 $3,691 2.3
Barbados 15.9 $12,687 6.9
Belarus 8.9 $4,621 5.9
Belgium 10.0 $43,470 6.0
References
Appendix
12
Bermuda 7.0 $86,450 2.0
Bhutan 23.8 $1,982 7.0
Botswana 13.6 $5,739 9.7
Brazil 15.3 $6,852 4.5
British Virgin Islands 8.5 $51,273 3.1
Bulgaria 11.8 $5,178 4.5
Cameroon 16.2 $1,111 3.1
Cape Verde 23.1 $2,689 6.7
Cayman Islands 9.5 $57,222 2.8
Chad 34.2 $692 1.9
Chile 24.5 $9,854 3.4
Colombia 26.2 $3,648 4.8
Cuba 11.3 $4,641 9.8
Cyprus 11.1 $27,465 6.3
Czech Republic 9.7 $16,881 4.3
Dominican Republic 26.7 $4,202 3.6
El Salvador 27.6 $2,971 2.7
Eritrea 47.6 $271 5.3
Finland 14.5 $46,371 6.3
France 10.6 $40,090 5.7
Germany 15.0 $40,162 4.5
Ghana 21.5 $647 5.4
Greece 8.6 $28,111 3.5
Guyana 17.9 $1,435 8.1
Hungary 11.1 $13,777 5.5
Iceland 11.6 $62,033 7.6
Indonesia 11.1 $1,869 2.9
Iran, Islamic Republic of 18.8 $4,072 4.7
Israel 11.6 $23,383 6.3
Italy 10.8 $35,585 4.4
Jamaica 18.5 $4,147 5.3
Japan 12.0 $34,225 3.5
Kazakhstan 11.0 $6,753 2.3
Kenya 31.6 $786 7.3
Kuwait 9.7 $38,574 4.7
Kyrgyzstan 13.4 $704 4.9
Lao 26.5 $711 2.3
Lebanon 7.9 $6,011 2.6
Lesotho 26.6 $797 13.8
Lithuania 9.9 $118,040 5.0
Madagascar 21.6 $108,217 3.2
Mauritania 31.0 $18,227 2.3
13
Mauritius 17.2 $874 4.4
Mexico 16.4 $5,846 5.5
Mozambique 24.9 $8,149 5.0
Netherlands 13.1 $2,217 5.2
New Zealand 14.4 $46,669 6.5
Oman 17.7 $15,546 3.5
Peru 16.7 $3,880 2.7
Philippines 33.1 $1,639 2.5
Poland 12.8 $11,008 5.5
Portugal 7.1 $20,990 5.4
Qatar 12.1 $75,978 3.3
Republic of Korea 16.9 $19,841 4.4
Republic of Moldova 13.7 $1,158 7.2
Romania 14.2 $7,523 3.5
Russian Federation 9.5 $9,050 3.8
Rwanda 26.3 $354 3.4
Saint Kitts and Nevis 9.9 $10,447 9.7
Saint Lucia 17.4 $5,810 5.5
St. Vincent and Grenadines 17.9 $4,660 8.0
Sao Tome and Principe 21.7 $912 5.1
Senegal 26.4 $908 3.9
Slovakia 13.3 $13,702 5.8
Slovenia 11.6 $22,936 5.3
South Africa 32.9 $5,826 4.2
Spain 10.2 $32,451 7.6
Swaziland 16.8 $2,520 7.1
Sweden 9.4 $49,873 3.5
Tajikistan 16.4 $555 4.2
Tunisia 17.2 $3,390 7.2
Ukraine 11.6 $3,055 6.1
United Arab Emirates 11.9 $43,709 1.4
United Kingdom 14.6 $45,549 5.5
United States 15.2 $45,047 5.3
Uruguay 16.9 $6,913 2.8
14
Descriptive Statistics
N Minimum Maximum Mean
Std.
Deviation
Statistic Statistic Statistic Statistic Std. Error Statistic
Teacher-Student Ratio 85 7.0 47.6 16.352 .8214 7.5725
GDP/Cap 85 271 118040 19432.65 2653.319 24462.389
Spending/GDP 85 1.4 13.8 4.916 .2283 2.1050
Valid N (listwise) 85
Model Summary for Educational Expenditure/GDP
Model R R Square
Adjusted R
Square
Std. Error of
the Estimate
1 .153(a) .023 .012 24319.271
a Predictors: (Constant), Spending/GDP
ANOVA(b) for Educational Expenditure/GDP
Model Sum of Squares df Mean Square F Sig.
1 Regression 1177875679.364 1 1177875679.364 1.992 .162(a)
Residual 49088435154.037 83 591426929.567
Total 50266310833.401 84
a Predictors: (Constant), Spending/GDP
b Dependent Variable: GDP/Cap
Coefficients(a) for Educational Expenditure/GDP
Model
Unstandardized
Coefficients
Standardized
Coefficients t Sig.
B Std. Error Beta B Std. Error
1 (Constant) 28177.773 6734.846 4.184 .000
Spending/GDP -1778.906 1260.532 -.153 -1.411 .162
a Dependent Variable: GDP/Cap
Model Summary for Student-Teacher Ratio
Model R R Square
Adjusted R
Square
Std. Error of
the Estimate
1 .373(a) .139 .129 22830.055
a Predictors: (Constant), Teacher-Student Ratio
ANOVA(b) for Student-Teacher Ratio
Model Sum of Squares df Mean Square F Sig.
1 Regression 7005765340.896 1 7005765340.896 13.441 .000(a)
Residual 43260545492.505 83 521211391.476
Total 50266310833.401 84
15
a Predictors: (Constant), Teacher-Student Ratio
b Dependent Variable: GDP/Cap
Coefficients(a) for Student-Teacher Ratio
Model
Unstandardized
Coefficients
Standardized
Coefficients t Sig.
B Std. Error Beta B Std. Error
1 (Constant) 39153.207 5921.580 6.612 .000
Teacher-Student Ratio -1206.002 328.948 -.373 -3.666 .000
a Dependent Variable: GDP/Cap
Model Summary for Combined Effect
Model R R Square
Adjusted R
Square
Std. Error of
the Estimate
1 .405(a) .164 .143 22642.188
a Predictors: (Constant), Spending/GDP, Teacher-Student Ratio
ANOVA(b) for Combined Effect
Model Sum of Squares df Mean Square F Sig.
1 Regression 8227480936.735 2 4113740468.367 8.024 .001(a)
Residual 42038829896.666 82 512668657.276
Total 50266310833.401 84
a Predictors: (Constant), Spending/GDP, Teacher-Student Ratio
b Dependent Variable: GDP/Cap
Coefficients(a) for Combined Effect
Model
Unstandardized
Coefficients
Standardized
Coefficients t Sig.
B Std. Error Beta B Std. Error
1 (Constant) 48122.010 8261.065 5.825 .000
Teacher-Student Ratio -1209.804 326.250 -.375 -3.708 .000
Spending/GDP -1811.761 1173.638 -.156 -1.544 .127
a Dependent Variable: GDP/Cap
Correlations
Teacher-
Student Ratio GDP/Cap Spending/GDP
Teacher-Student Ratio Pearson Correlation 1 -.373(**) -.008
Sig. (2-tailed) .000 .945
N 85 85 85
GDP/Cap Pearson Correlation -.373(**) 1 -.153
Sig. (2-tailed) .000 .162
N 85 85 85
16
Spending/GDP Pearson Correlation -.008 -.153 1
Sig. (2-tailed) .945 .162
N 85 85 85
** Correlation is significant at the 0.01 level (2-tailed).
Correlations
Control Variables GDP/Cap Spending/GDP
Teacher-Student Ratio GDP/Cap Correlation 1.000 -.168
Significance (2-tailed) . .127
df 0 82
Spending/GDP Correlation -.168 1.000
Significance (2-tailed) .127 .
df 82 0
Correlations
Control Variables GDP/Cap
Teacher-
Student Ratio
Spending/GDP GDP/Cap Correlation 1.000 -.379
Significance (2-tailed) . .000
df 0 82
Teacher-Student Ratio Correlation -.379 1.000
Significance (2-tailed) .000 .
df 82 0
