Role of education in developing the economy

Role of education in developing the economy

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Education plays a significant role in promoting the economic growth of a country.


‘If a man neglects education, he walks lame to the end of his life,’ the words were written by Plato while emphasizing on the role of knowledge and learning. Today, education still plays a major role in not only the personal development of an individual but also the social and economic development of a country. Particularly, the global economy in the modern era depends greatly on advanced technology, where the emphasis is on the role of human resources in the growth of the economy. In this regard, the relative contribution of every individual is compared to the effect on the economy and is dependent on their human capital: knowledge, skills, education, competencies and other economic relevant attributes. Consequently, the development of skills and knowledge of human labor is a strategic approach to the promotion of increased social, economic growth. The production of active human labor needed for social, economic growth depends on the education level of the laborer and the quality of education in the country’s education system.

The economic role of education in the modern world

The relationship between education and economics has transformed dramatically over the years. Wolhuter (2017) explains that two societal trends impacting the role of education in the modern world have emerged: globalization and the revolution of the neo-liberal economy. Halls (1991 as cited by Wolhuter, 2017) defines globalization as the increased network of worldwide social relations through linkage of distant localities in a manner that the local events in a certain region are affected by events happening in the far distant area and vice versa.  Further, Wolhuter (2017) explains that the neo-liberal economic revolution is the change of the traditional role of the state in the promotion of economy and the provision of social services to allowing the market forces and private entrepreneurship determine and provide the same.

The increased globalization has eliminated any previous geographical advantages that a country had such as location and endowment with natural resources. The modern world has advanced technology in communication and transport, and the remaining competitive advantage between competing economies is the quality of human resource and the political, social and economic context (Wolhuter, 2017). On the other hand, the value of human beings in a neo-liberal economy is perceived as consumption and production unit. Still, the quality of education determines the economic contribution of educated persons. Consequently, Wolhuter (2017) argues that the changing nature of economics has influenced the principles of efficiency and the profit intent into education, and triggered the rise of private education. These dynamic changes have led to significant changes to the research on comparative education.

Lastly, the rise of the knowledge economy has tremendously increased the demand for quality education.  Over time, Wolhuter (2017) explains that the national economy has undergone various changes. Initially, the economy in the first age was a phase of hunting and gathering. The ‘Fertile Crescent’ of the Middle East led to the Agricultural Revolution which bore the agricultural economies. In this phase, agriculture and other extractive industries like fishing, forestry, and mining for trade were the main activities. Then, the Industrial Revolution that started in England in around 1760 gave rise to the industrial economies. Notably, the manufacturing industry was the backbone of the industrial economy. Next, the services phase emerged in North America and Western Europe during the 20th century and involved the provision of services. Today, the advanced knowledge economy runs the world. in this economy, the consumption and production of new knowledge is the driving force of economic development. In this phase, education takes the sole role in generating economic growth and determines the extent of prosperity.

Aligning education to the demands of the globalized world

The education system in the 21st century needs to align itself to the requirements of the knowledge phase of economics. Further, the rapid technological advancements require the education system to equip students with the ability to apply the concepts, and core knowledge learned in solving challenges in their respective societies. As a result, countries are re-shaping their education systems by equipping their young children with critical and creative thinking skills, complex problem-solving skills and ability to make evidence-based skills. As such, the alignment of the education systems to the demands of the globalized world needs to be done starting from the pre-school level before the primary and secondary level. Also, countries need to ensure the illiterate adults are given the platforms to acquire the new skills and get certification on the same.

The link between literacy skills and economic growth

According to Rouse (2017), the investment in human capital in the modern world is essential to the growth of an economy, in the long run, three times more than the physical capital such as equipment and machinery. Moreover, Rouse (2017)explains that human capital is better measured using the literacy scores rather than the number of schooling years, especially when determining growth in output per capita and worker. In the conclusion of a study conducted by (Dyshaeva, 2015), human capital accumulation plays a significant role in the long-run of the economic health of a country. Notably, the study concludes that the differences in the level of skills of European countries explain the 55% difference in the economic growth of different countries over thirty years (1960-1994). The findings imply that when a state invests in increasing the average competence skills of its human capital, it will yield massive economic returns.

Moreover, the study indicates that in any particular population, the average literacy score is a better indicator of growth than the overall percentage of the population with high literacy scores. This finding implies that countries that focus on the promotion of strong literacy skills widely in their population are more likely to have improved growth and well-being of their economy than countries that have a large gap between the low-skilled and high skilled laborers. Further, Rouse (2017) concluded that the impact of education on earnings is influenced by two factors: an increase in earnings due to the specialization of knowledge and skills, and the stronger literacy skills dependent on the level of education. Rouse (2017) found out that for every additional year of educational attainment, the earnings rose by an estimated 9%. Notably, the experience in the labor market largely improved the earnings in approximately 5% increase every year especially at the initial years of career progression and later, progressively smaller amounts. Lastly, the study found out that the average literacy score had a higher positive impact, separate from the influence of labor market experience, educational attainment, and other important factors.

Investing in pre-school education

The improvement of the education system to one that has good economic returns go a long way in promoting the economy. To date, the focus on the quality of education at the pre-school level has been insignificant yet plays a significant role in equipping young children with the appropriate skills for the modern human capital. Particularly, Karoly(2016) argues that the quality of pre-school programs causes different short-term and medium-term effects on socio-emotional, cognitive and behavioral areas of a young child.  However, Karoly(2016) explains that the government has ignored the quality of education for long, and there is need to calculate the actual economic value of pre-school level without having to wait when the children are almost into adulthood.

While the globalized world has widened the scope of knowledge acquisition, it has also led to the demand for more financial resources from the government (Dyshaeva, 2015). Unfortunately, the policy makers argue that for the government to channel its limited resources to a particular sector, the economic benefits must be practically defined, and such interests are the most economically feasible. As such, the gains must translate to financial savings for an effective intervention to be considered.

Nevertheless, Karoly(2016) explains that the value of pre-school programs can be determined through comparison of the upfront costs to the economic benefits produced, improved high school completion rates, reduced need for specialized services, higher earnings and low rate of crime when in adulthood. Karoly(2016) further argues when the government invests in its very young in pre-school, their basic learning and socialization skills also increase. Consequently, the efficiency of an education system will be enhanced if the human capital investment is redirected to the young. Countries that are aware of the significance of pre-school education are making them become the center-piece of schools and social reforms.

Investing in adult literacy

One of the unique characteristics of the 21st century is the rapid technological advancements in all fields of knowledge.  The various industries that run the economy are increasingly looking for new talents to help their organizations keep up with the trend. As Foster (2012) had predicted, over 63% of jobs will require a post-secondary qualification. However, it is unfortunate that today, only an estimated 60% of adults have attained college qualifications. As Foster (2012) argues every country in the world, both developed and developing, needs to increase the education level of its illiterate adults to meet the dire need for human labor. Particularly, Foster (2012) warns that if the United States fails to increase the number of educated adults, there is bound to be a shortage of an estimated three million skilled-laborers. Also, an increasing wage-gap between the skilled and non-skilled workers is forcing the urgency to assist workers to get access to further education and training. Rouse (2017) explains that lowly-educated workers are more likely to earn lower wages than higher skilled workers, be unemployed, fail to offer college education to their children and even face health-related issues, further negatively impacting the well-being of the economy.

In recognition of the need to empower the illiterate adults in the United States, Sen. Jim Webb introduced the Adult Education and Economic Growth Act (AEEGA) to the House of Representatives in 2011. The Act was an amendment of the Workforce Investment Act (WIA) and promoted the use and accessibility of career paths for adults with low skills. Also, the Act emphasized on the focus of adult education on the post-secondary level and subsequent success, modernized the adult education system to meet the demands of the knowledge phase and increased the number of adult education students completing the post-secondary level. Notably, Foster (2012) argues that while the AEEGA made substantial improvements on WIA, especially the provisions governing the adult education, there is still a need to improve it by adding stronger provisions that seek to align the WIA ACT, especially regarding the shared system of accountability.


Since time immemorial, economists have made many types of research to identify the factors that promote the economic growth of a country. A growing economy generates a lot of potential for prosperity and success of its citizens and still, lays the foundation for a relatively higher equitable distributing of the benefits of growth. The drivers of economic growth have been changing depending with the period, evolving from hunting and gathering, agricultural activities, provision of services, manufacturing industries to the current phase: knowledge phase. The knowledge phase economy emphasizes the quality of human capital: education and training, to drive the rapidly advancing technology. Since the measuring of level of skills is complicated, economic analysts have been relying on indirect measures of human capital by assuming that persons with high education qualifications have more knowledge and skills than the ones with lower educational qualifications. As such, the findings of various studies have identified the quality of human capital as the main contributor to economic growth in the modern world.

Consequently, every government should strive to improve the quality of its education system to reap the economic benefits of such. Workers with higher qualification levels easily get jobs and earn much higher wages than the ones with low qualifications. For the education system to have an impact on the economy, governments should reduce the number of illiterate adults by promoting adult education and also invest heavily on pre-school education. Contrary to the argument of many policymakers, pre-schools have long term benefits to the economy, and they should take the priority in the distribution of resources in the education sector.


Dyshaeva, L. (2015). To the Question about the Quality of Economic Education. Bulgarian Comparative Education Society.

Foster, M. (2012). The Adult Education and Economic Growth Act: Toward a Modern Adult Education System and a More Educated Workforce.[Updated]. Center for Law and Social Policy, Inc.(CLASP).

Karoly, L. A. (2016). The economic returns to early childhood education. The Future of Children26(2), 37-55.

Rouse, C. E. (2017). The economics of education and policy: Ideas for a principles course. The Journal of Economic Education48(3), 229-237.

Wolhuter, C. (2017). Economics and Comparative and International Education: Past, Present, Future. Bulgarian Comparative Education Society.

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