Quality and Quantity of Education in the Process of Development

We develop a theory of educational quality to study how quality could account for schooling decisions regarding higher education (secondary and above), and how the distribution of educational attainment and educational quality differ with the level of development. In a general equilibrium closed economy, higher education requires an extra investment of private resources, whereas primary education does not. The theory states that human capital accumulation depends on quality through two channels. The extensive channel refers to access to higher education. Even with perfect capital markets, relatively low quality could discourage opportunities to pursue education beyond primary school, since low quality decreases the returns from higher education. As a result, agents could get stuck at primary levels, and the economy ends up being poor. The intensive channel establishes that once individuals decide to participate in higher schooling, the higher the quality of educational system, the larger the investment made by each agent. Using cross-country data, empirical evidence shows that the proposed channels seem to be quantitatively important. Furthermore, the quality of education proves to be an important determinant of economic growth, especially when the quality of education is relatively high. We also find that when quality and quantity are included as potential determinants of growth rates in real per capita GDP, both variables are statistically significant in developed countries, but in the top income economies our results show a predominant effect of quality over quantity of schooling.