The early studies of Denison (1962, 1967, 1979), Harbison and Myers (1964) and
Schultz (1961) and Becker (1964) are well known. Denison approached the problem of
how much education contributes to economic growth by attributing a proportion of
economic growth not explained by increases in capital, labour and productive land to
improvements arising from increased educational levels in the labour force. This
produced results suggesting that 23% of US economic growth was a result of
educational investment between 1930 and 1960, and 15% for the period from 1950 to
1962, and 11% for 1948 to 1973. This kind of analysis claims to provide estimates of
both the direct contribution of education and the indirect benefits that arise from
advances in knowledge. The latter are argued to be responsible for about 29% of
growth in Denison's last study thus attributing 40% (29%+ 11 %) to improvements in
human capital and education broadly defined (Hicks 1987: 102). When the approach
was applied to other countries the results varied widely - from 2% to 25% in a group of
developed countries and from 1% to 16% in a group of developing countries
(Psacharopoulos and Woodhall 1985:16). Bowman (1980) suggested that in over 22
countries where estimates could be made for the period 1950-62 education made a
direct contribution to economic growth of more than 10% in only four. She also noted
that the residual to be explained seemed to be greatest the higher the economic growth
rate but that the contribution of education seemed to be smaller where growth rates
were high. Others (e.g. Christensen and Jorgenson (1969)) have argued that if inputs
and outputs are more completely specified than in the Denison model the residual to be
explained is much more modest in size than suggested and, by implication, the
contribution of education is over-estimated.
Harbison and Myers approach was to develop indicators of human resource
endowments and compare these with indicators of economic development. Predictably
choosing different indicators produces somewhat different results, but the overall
correlation between greater human resource endowments and greater levels of
economic development is robust. It leaves open the question of causality. Richer
countries do indeed invest more in education and have higher endowments of human
resources as a result. But this cannot lead to the simple conclusion that more investment
in education in poor countries will lead to more economic development.
Schultz (1961) and Becker (1964) used an approach based on the rate of return to
human capital. This assumes that individuals invest in education up to the point where
the returns in extra income are equal to the costs of participating in education. Returns
are both private (to the individual in the form of additional income) and public (to
society in the form of greater productivity). Rates of return studies in developing
countries have generally shown that returns at primary level are greater than for higher
levels; private rates exceed social rates; social rates of return often exceed a 10%
threshold- rates of return for education are higher in poorer countries (Psacharopoulos
1981, 1985); rates of return fall as economic development takes place; the greatest