effectiveness of education on economic development in asia:
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Effectiveness of Education on Economic Development in Asia: A New Policy Modelling Approach for Public Services Equalisation 18 Aug 2008 Faculty of Economics, Thammasat University, Bangkok. Tran Van Hoa - PowerPoint PPT PresentationTRANSCRIPT
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Effectiveness of Education on Economic Development in Asia:
A New Policy Modelling Approach for Public Services Equalisation
18 Aug 2008Faculty of Economics,
Thammasat University, Bangkok
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Tran Van Hoa
Professor and Director, Vietnam and East Asia Summit Research Program
Centre for Strategic Economic StudiesVictoria University, Melbourne, VIC 8001, Australia
Email: [email protected]; Website: http://www.staff.vu.edu.au/CSESBL/
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ABSTRACT
• The paper uses a new endogenous growth regression model to explore the impact of education on growth in China and India
• To inform debates on public services equalisation effectiveness and regional competitiveness policy
• Under increasing global economic integration, robust domestic reforms and damaging regional crises and natural disasters.
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TREND IN MAJOR PUBLIC SERVICES: CHINA
0.00
5.00
10.00
15.00
20.00
25.00
30.00
PE
RC
EN
TA
GE
IFSTY
RUY
EHY
PEY
AY
POY
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CHINA PUBLIC SERVICES: HISTORICAL PATTERN
• Education and Health: Largest
• Followed by Administrative Expenses
• Both are Parallel and Rising
• Rural Support Stable
• Pensions Payment Lowest and Slowly Rising
• Innovation, Policy Expenses Falling
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TREND IN MAJOR PUBLIC SERVICES: INDIA
0.00
5.00
10.00
15.00
20.00
25.00
30.00
35.00
PE
RC
EN
TA
GE
AGRI
RURAL
FLOOD
ENERGY
EDU
HEALTH
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INDIA PUBLIC SERVICES: HISTORICAL PATTERN
• Energy: Largest but Falling
• Education: Low and Slowly Rising
• Health: Peaked late 1990s but Falling in Mid-2000s
• Rural Support: Stable but Falling
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MEAN (1986-2005) SHARES OF MAJOR SERVICES: CHINA
7.43 7.74
24.07
2.18
14.59
8.17
0.00
5.00
10.00
15.00
20.00
25.00
PERC
ENTA
GE
IFSTY RUY EHY PEY AY POY
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ITEMS OF NOTE: CHINA
• Education and Health: Largest• Followed by Administrative Expenses• Rural and Innovation-Science-Technology
(IST): Almost Equal Shares• New Tax Burden (Gao 2006)-> Public
Service Efficiency• Research Focus: What are Contributions
of Education & Health, Rural and IST Support to China’s Growth?
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MEAN (1992-2005) SHARES OF MAJOR SERVICES: INDIA
4.94
8.627.09
25.14
5.24 4.43
0.00
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25.00
30.00
PER
CENT
AGE
AGRI RURAL FLOOD ENERGY EDU HEALTH
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ITEMS OF NOTE: INDIA
• Education & Health Expenditure: Less Than Half of the Share in China
• Rural Support: Similar Share as in China
• Are India’s Public Expenditures Efficient?
• Research Focus: What are Contributions of Education & Health, and Rural Support to India’s Growth?
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DEVELOPMENT & GROWTH PATH:CHINA & INDIA
0
2
4
6
8
10
12
14
16
PER
CEN
TAG
E
YCIN
YCCN
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EDUCATION & DEVELOPMENT CAUSALILTY ISSUES
• Multitude of Growth Theories (Levine & Renelt 1992)
• ‘Applied’ Nature of Economic Development (Krueger 2007)
• Inherent Interdependent Characteristics of Activities in Development (Krueger 2007)
• Nonlinear Features of Development Causality Relationship (Minier 2007)
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EXISTING CAUSALITY & IMPACT METHODOLOGIES FOR GROWTH
– Descriptive Analysis:• Correlative and no Testable Causality
– CGE:• Essentially confirmatory in nature
– Growth Regression: • No circular causality or endogeneity specified• Limitations in Functional Form• No Country-Specific Characteristics
– Credible Realism for Policy: Weak
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ENDOGENOUS EDUCATION-GROWTH THEORY
• Keynesian-SNA93 Income Identity & Sources of Growth: Y=C+I+G+X-IM
• Endogenous Education-Growth Regression (TVH 2004, Edwards 2007)– Y=Y(E,R,FDI,S)– E=E(Y,FDI,X,W,S)– R=R(Y,FDI,X,W,S)
• Taylor Planar Approximations (TVH 1992, Baier & Bergstrand 2008)– Y%=a1+a2E%+a3R%+a4FDI%+a5S + u– E%=b1+b2Y%+b3X%+b4W%+b5S + e
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Kydland’s Data-Model Consistency Criterion
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SUBSTANTIVE FINDINGS:EDUCATION-GROWTH CAUSALITY
IN CHINA & INDIA CHINA INDIA GDP Income/Head GDP Income/Head Variables Impact Impact Impact Impact Constant 3.994** 2.541** 1.950* 0.825 Education/GDP 0.004 0.046 Health/GDP 0.001 0.007 Education+Health/GDP -0.186** -0.195** Rural Subsidies/GDP 0.028 0.029 0.043 0.071* Innovation+Technology/GDP -0.046** -0.047** Unemployment -0.014 -0.015 FDI/GDP 0.036** 0.036** 0.005^ 0.003 ODA/GDP 0.001 0.001 0.001 0.002* China Reforms 1991 5.083** 5.186** China Reforms 1993 0.646 0.775 India Reforms 1995 6.067** 4.459** Asia Crisis 1997 0.047 0.367 -1.509 -0.543 Terrorist Crisis 2001 -0.322 -0.085 -2.239* -2.206* India Reforms 2004 3.864** 3.884** R2 96.18 96.30 89.92 89.28 DW 2.74 2.68 2.87 2.78
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ARE OUR FINDINGS CREDIBLE?MODELLING CHINA GDP &
GDP/HEAD
0.00
2.00
4.00
6.00
8.00
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12.00
14.00
16.00
PE
RC
EN
TA
GE
YCCN
YCCNF
YHCCN
YHCCNF
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ARE OUR FINDINGS CREDIBLE?MODELLING INDIA GDP &
GDP/HEAD
-2.00
0.00
2.00
4.00
6.00
8.00
10.00
PE
RC
EN
TA
GE
YCIN
YCINF
YHCIN
YHCINF
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ARE OUR FINDINGS CREDIBLE?MODELLING CHINA & INDIA
EDUCATION EXPENDITURES
-15.00
-10.00
-5.00
0.00
5.00
10.00
15.00
20.00
25.00
30.00
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
EYCNC
EYCNF
EY INC
EY INCF
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IMPLICATIONS FOR EDUCATION REFORMS & PUBLIC SERVICE
EQUALISATION IN CHINA 1
• Education & Health: Strong negative contribution
• Rural Support: Weak beneficial impact• Innovation-Science-Technology Support:
Strong negative effect
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IMPLICATIONS FOR EDUCATION REFORMS & PUBLIC SERVICE
EQUALISATION IN CHINA 2
• Policy Implications (see also OECD & WB 08): – Support for Education & Health Efficiency
Reforms– Support for More Rural Expenditure– Support for Innovation, Science & Technology
Efficiency Reforms– Need for research on Administrative impact on
growth– ODA: Beneficial but weak impact on growth
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IMPLICATIONS FOR CHINA & INDIA REGIONAL COMPETITIVENESS 1
• India’s more efficiency in education and health expenditures
• This is exacerbated by their much smaller shares in public service expenditure
• India’s slightly more efficiency in rural support contribution to growth
• This may be attenuated by India’s slightly higher public expenditure in rural programs
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IMPLICATIONS FOR CHINA & INDIA REGIONAL COMPETITIVENESS 2
• In both countries, good reforms contribute far more to growth than expenditure on public services
• India’s good reforms achieve higher growth returns than China’s.
• However, China’s much higher efficiency in FDI utilisation (underscoring FDI-led growth)
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IMPLICATIONS FOR INTERNATIONAL EDUCATION
(BASIC SERVICES) EQUALISATION
• OECD-WB: Recommend China’s education expenditure scale to reach OECD (24%) level
• Our findings indicate that, while increasing China’s expenditure on education is important, improving education efficiency is a higher priority
• Improving public expenditure share on education in India however improves its growth