Education does have a positive impact on economic growth, but its contribution is weaker than other, institutional parameters such as the rule of law, property protection and good business regulation.

Any change that would improve the quality of education would be welcome, but its implementation takes a long time. If we want a higher rate of economic growth, education is not the first or most important thing we should focus on.

What does the theory say?

Economists have been theoretically and empirically engaged in economic growth for decades. Initially, the main emphasis was on capital accumulation. Economic growth was viewed as a function of the amount of capital and labor in an economy, so the most important parameters of growth were savings and natural increase. In 1957, Robert Solow included technological changes in this equation, as perhaps the most important component, but the very causes of these changes were not addressed. Mancu, Romer and Weil introduced education in 1992 as a component of this model, arguing that education could accumulate, which is called human capital. More human capital moves the economy to a new state with a higher income, but when it does, education no longer has an impact on the rate of economic growth.

On the other hand, theories of endogenous growth give much more importance to education - for example, Lucas and Romer claim that education influences the increase of the innovative capacity of an economy because it enables the development of new ideas and technologies. Their approach explains how education affects growth even years after the completion of the formal education cycle. The last look at the link between education and economic growth is given by theories of technology diffusion: authors like Nelson or Welch argue that economies grow by adopting new technologies that increase productivity, and that education facilitates the transfer of specific knowledge needed to implement new technologies.

Emphasis on the quality of education, not its length

When assessing whether and to what extent education has an impact on economic growth, the average number of years of education was initially used as the most available information from national statistics and censuses. However, it is clear that this is not a perfect metric because it implies that one year of schooling in different countries has the same impact on human capital creation. As we know that school systems differ between countries, this is hardly true. But it was only with the development of some standardized international tests - primarily PISA - that better metrics came about.

PISA tests measure how much students are able to use school knowledge in practice by solving the problems set before them. While initial research showed that the number of years of schooling did not have much to do with the rate of economic growth, later research showed that the quality of education has a statistically significant relationship with growth.

Assessing the impact of education on economic growth

The fact that the quality of education has an impact on the rate of economic growth does not tell us how significant that impact is. Some estimates of this impact (Hanushek and Woesmann, 2000) clearly overestimate the reach of education to economic growth, as it is almost entirely attributed to the increase in the coverage and quality of education over the past few decades, and ignores a number of other variables. One of their later studies from 2009 also took into account certain institutional variables, such as the security of property rights, which significantly reduced the effect attributed to differences in education. This later study claims that in countries that would increase the quality of their education, measured by achievements on PISA tests by 25 points, there would be an increase in economic growth by almost 0.9% per year.

If we put this claim into perspective, we see that students in Serbia had an average of 442 points in the last cycle of PISA testing in 2018 (while the average of OECD countries was 488). This means that there is a lot of room for Serbia to improve the quality of its education, as we are not in a particularly good place at the moment. At the same time, although 25 points seems ambitious (according to the PISA methodology, 38 points is equal to educational achievement during one school year), it is equal to Poland's progress during the previous two decades (from 489 in 2000 to 513 in 2018). But would increasing the quality of education help us significantly? Probably not.

Problems arise: slowness and uncertain

The first problem is slowness. In order to increase the quality of education, and significantly, time is needed. Even if we suddenly got a better quality education system quickly and easily, at the touch of a button - we would only see results in the years to come. It takes time for students to go through it - at least 12 years as long as primary and secondary education lasts. This would be even slower if something very radical needs to be done for these changes, such as increasing the quality of teachers. Replacing the work of older teachers who will find it harder to adapt to the new system of work would take years through their retirement and employment of new, young teachers with different education and skills. Therefore, the contribution of higher quality education will give its full result only later, as young people with better education will be included in the labor market and advance through their careers. To calculate that the new better education is diffused throughout the labor market, at least it takes more than 50 years - about 12 years for primary and secondary education (excluding college) and then one working life of about 40 years. Until then, the contribution of increasing the quality of education to the rate of economic growth would be significantly lower than the expected 0.9% per year.

Another problem is that there is still no clear idea of ​​how the quality of education systems can be improved. There are a lot of ideas and possibilities here, but nothing is written in stone. One of the variables that seems to have the greatest impact on the quality of education in international research is the quality of teachers - which tells us that these reforms would most likely take a significant number of years until the generational change in schools. But these new generations must be educated and motivated to do their job well, while it is still not clear what factors influence the attraction of such candidates to enroll in teacher training colleges.

Is it worthwhile then to deal with education?

Yes, a better education would bring us many positive things through a more significant accumulation of human capital. It should be understood that the improvement of education will take a long time, and that there is no magic wand for some easy and quick solutions. Better education is also not a magic cure for all social problems in Serbia. If we talk about whether better education will help us accelerate Serbia's economic growth, and help us get closer to other European countries in terms of living standards, it will certainly do so in the long run. But in the short term of a few years, that is certainly not the case.

If we want the faster economic growth we need, it seems that we have no choice but to deal with those problems where the situation is extremely bad, and those are basic market institutions such as the rule of law and the protection of private property.

Thank you for your patience! Cheers!