Centre for Vocational Education Research LSE RSS Email Facebook Twitter


CEP discussion paper
The Role of Educational Quality and Quantity in the Process of Economic Development
Amparo Castelló-Climent and Ana Hidalgo-Cabrillana November 2011
Paper No' CEPDP1087:
Full Paper (pdf)

JEL Classification: I21; O11; O15; O4

Tags: quality of education; human capital composition; economic growth

We develop a theory of human capital investment to study the channels through which students react to school quality when deciding on investments in secondary education and above, and to study how educational quality affects economic growth. In a dynamic general equilibrium closed economy, primary education is mandatory but there is an opportunity to continue on in education, which is a private choice. High-quality education increases the returns to schooling, and hence the incentives to accumulate human capital. This is caused by two main effects: higher quality makes higher education accessible to more people (extensive channel), and once individuals decide to participate in higher education, higher quality increases the volume of investment made per individual (intensive channel). Furthermore, educational quality plays a central role in explaining the composition of human capital and the long-run level of income. 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.