Friday, November 25, 2011

Global Correlation of Education with Economic Productivity

Another Stern HW piece I thought was interesting and worth posting.  This one is about the correlation of education with productivity at the country-level. 

Here I look at two data series, both from the World Bank's World Development Indicators Database.  The first is GDP per capita based on PPP in constant 2005 international dollars (NY.GDP.PCAP.PP.KD), and the second is the ratio of total enrollment, regardless of age, to the population of the age group that officially corresponds to the tertiary level of education (SE.TER.ENRR). Tertiary education, regardless of whether it leads to an advanced research qualification, normally requires as a minimum condition of admission the successful completion of education at the secondary level.  Both series start to have meaningful numbers of country-level measurements in 1971.

I start by plotting the regression in 1971 of GDP per capita on percent enrolled in tertiary education. 

This regression line shows that, in 1971, each percentage point increase in the percent enrolled in tertiary education is associated with an additional $547.84 in GDP per capita.  (Red dots are OECD nations.) The R-square statistic also shows that a significant amount of the variation in GDP per capita is explained by variation in the percent enrolled in tertiary education.

However, by 2008, the last year available in the series, the level of correlation had changed.

In 2008 the regression line is much flatter and each percentage point increase in the percent enrolled in tertiary education is only associated with an additional $193.78 in GDP per capita.  The R-square statistic also shows that, by 2008, far less of the variation in GDP per capita is explained by the percent enrolled in tertiary education.

I ran the regressions for each year from 1971-2008 and plotted those lines on a single chart.  A very clear pattern emerges.



The correlation of education with productivity at the country-level appears to be decreasing over time.  Of course correlation and causation are not the same thing - but given the emphasis the economic development community places on education, this would seem to be a pattern worth exploring further.