Soriel

Economics of Education Review 31 (2012) 391–409

Contents lists available at SciVerse ScienceDirect

Economics of Education Review
journal homepage: www.elsevier.com/locate/econedurev

The role of educational quality and quantity in the process of economic development
Amparo Castelló-Climent a , Ana Hidalgo-Cabrillana b,∗
a b

Institute of International Economics, Spain Department ofEconomic Analysis, Universidad Autónoma de Madrid, Spain

a r t i c l e

i n f o

a b s t r a c t
We develop a theory of human capital investment to study the effects of school quality on student choices of education, and to understand its effect on economic growth. In a dynamic general equilibrium closed economy, primary education is mandatory but there is an opportunity to continue tosecondary education and beyond. High-quality education increases the returns to schooling, and hence the incentives to accumulate human capital. This is caused by two different channels: higher quality makes education accessible to more people (extensive margin), and once individuals decide to participate in higher education, higher-quality increases the investment made per individual (intensivemargin). Furthermore, educational quality determines human capital composition and growth. Cross-country data evidence shows that the proposed channels are quantitatively important and that the effect of the quality and quantity of education on growth depends on the stage of development. © 2011 Elsevier Ltd. All rights reserved.

Article history: Received 29 November 2009 Received in revised form 23November 2011 Accepted 28 November 2011 JEL classification: I21 O11 O15 O4 Keywords: Quality of education Human capital composition Economic growth

1. Introduction This paper seeks to understand what drives schooling decisions regarding higher education (i.e., secondary and tertiary education) and why educational attainment lev-

The authors thank Mauro Sylos for helpful discussions andcomments. We are grateful for the hospitality of the Economics Department at Columbia University, where part of this work was conducted, as well as for the helpful comments and discussions received at MMM 2009 Indiana, EEA 2009 in Barcelona, and LACEA 2009 in Buenos Aires, SAE 2009 in Zaragoza, RES 2010 in London, SED 2010 in Montreal, IWAEE 2010 in Catanzaro, AMES 2011 in Seoul, and macroseminars atthe University of Salamanca 2009, and Granada, 2010. Financial aid from Fundación Ramón Areces is greatly appreciated. Amparo Castelló gratefully acknowledges the financial support from the Spanish Ministry of Education through project ECO2011-29283 and the Ramón y Cajal Programme. Ana Hidalgo gratefully acknowledges the financial support provided by the Spanish Ministry of Science and Innovationthrough program ECO2010-19596. ∗ Corresponding author. Tel.: +34 91 497 70 19; fax: +34 91 497 70 69. E-mail addresses: amparo.castello@uv.es ana.hidalgo@uam.es (A. Hidalgo-Cabrillana). (A. Castelló-Climent),

els differ widely with the level of economic development. Two salient features are worth noting. First, most of the population in poor coutries have only a primary education or none at all.Second, higher education attainments increases with income and differs substantially across countries. Possible explanations for this could be, for example, the typical credit constraints story (e.g., Galor & Zeira, 1993; Mookherjee & Ray, 2003) and the existence of skillbiased technical change (e.g., Galor & Moav, 2000). In this paper, we analyze an alternative explanation that posits cross-countrydifferences in the quality of the educational system. As preliminary evidence of how important the quality of education may be, we plot enrollment rates in secondary education and a measure of educational quality in each country.1 The results are striking. Fig. 1 shows a positive correlation between educational quality and enrollment

1 The quality of the educational system is measured...