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The total return to higher education: Is there underinvestment for economic growth and development?

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  • McMahon, Walter W.

Abstract

The total return to higher education is the rate of return based on earnings plus non-monetary private and social benefits beyond earnings that captures higher education’s contribution to development. A theory of endogenous development is a new scholarly contribution where firm and household production with education externalities and the endogeneity of new ideas leads to an optimal rate of development. This rate is higher than in an economy without these externalities. Since measures of private non-market and social benefit externalities are positive, externalities contribute to higher per capita development. The total return is estimated to be considerably higher than the opportunity cost of funds and the return on physical capital, the first major evidence of serious underinvestment in higher education in the US for optimal development. Policy-relevant treatment effects and policy options with implications for optimal development and for improving the worsening condition of the dissatisfied middle class are considered.

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  • McMahon, Walter W., 2018. "The total return to higher education: Is there underinvestment for economic growth and development?," The Quarterly Review of Economics and Finance, Elsevier, vol. 70(C), pages 90-111.
    • Handle: RePEc:eee:quaeco:v:70:y:2018:i:c:p:90-111
    DOI: 10.1016/j.qref.2018.05.005
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    7. Yue Xu & Zihao Xu & Dayu Zhai & Yanyu Li, 2023. "Effects of Higher Education on Green Eco-Efficiency and Its Optimization Path: Case Study of China," Sustainability, MDPI, vol. 15(18), pages 1-19, September.
    8. Aldenis Vásquez & Rafael Alvarado & Brayan Tillaguango & Cem Işık & Muntasir Murshed, 2023. "Impact of Social and Institutional Indicators on the Homicide Rate in Ecuador: An Analysis Using Advanced Time Series Techniques," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 169(1), pages 1-22, September.
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    More about this item

    Keywords

    Endogenous development; Human capital; Growth; Education for development; Social rates of return; Education externalities; Non-monetary higher education benefits;
    All these keywords.

    JEL classification:

    • I23 - Health, Education, and Welfare - - Education - - - Higher Education; Research Institutions
    • I25 - Health, Education, and Welfare - - Education - - - Education and Economic Development
    • I26 - Health, Education, and Welfare - - Education - - - Returns to Education
    • I28 - Health, Education, and Welfare - - Education - - - Government Policy
    • H52 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Education
    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration

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