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Higher Education: A Gateway Towards Economic Development
Mr Roodradeo Beefun
Lecturer
Mauritius Institute of Education
Mrs Vandana Tulsidas – Veeraragoo
Lecturer
Mauritius Institute of Education
Chaired by: Prof Pundy Pillay, Professor of Economics and Public Finance, University of
Witwatersrand, Johannesburg, South Africa
ABSTRACT
This paper provides an insight about the multiplier effect of investment in higher education
and its effect towards economic development of a country. The role of higher education as a
major driver of economic development is well established, and this role will increase as
further changes in technology and globalization take place. In the globalized world,
economic growth depends on the capacity to produce knowledge. Higher education
contributes to a country’s economic development; it does so through production and diffusion
of knowledge which impacts on the economy as a whole both in terms of more qualified
human capital and higher standard of living. Higher education will be a dominant, if not
decisive, factor in preparing workers with the robust skills needed to adapt to changing
labour market. Economic restructuring has created most of the new jobs in occupations
dominated by highly skilled managerial and professional workers. With the shift to an
information economy, globalization, and flexible organizations of production, economists
have taken these arguments about human capital in the production process a step further.
Education is a gateway towards the adoption and implementation of new technologies in
their workplace.
The vitality of higher education is a fundamental determinant of a nation’s position in the
world economy. Higher education can produce both public and private benefits. The private
benefits for individuals are well established, and include better employment prospects, higher
salaries, and a greater ability to save and invest. These benefits may result in better health
and improved quality of life. The private benefits of the individuals have a positive impact on
the society as a whole. Higher earnings for well-educated individuals raise tax revenues
which help the government. The fact that individuals with more education have higher
earnings is another indication that education contributes to growth. Economic development
is a powerful determinant of poverty alleviation and improvements in people’s lives.
Investment in the sector may rise and contribute further towards economic development due
to government’s willingness to encourage investors from various countries. The foreign
direct investment (FDI) will further boost the rate of economic growth. To maintain our
economic competitiveness, higher education must continue to play the lead role in educating
our workforce. Moreover, higher education also generates cadres at all levels in the society.
Mauritius is aiming to become a knowledge hub in the near future, thus the development of
higher education is of paramount importance.
Keywords: Higher Education, Economic Growth, Economic Development.
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1 INTRODUCTION
Modern theory of economic growth stresses the principal role of higher education in
developing economies. The relationship between education and economic development has
long been recognized in the literature (Stevens & Weale, 2003). On the one hand, education
is seen as a product of the development process that is worthy of pursuit by itself. On the
other hand, it is considered a crucial input into the development process. It is considered as an
input to economic growth, healthier society and enhanced infrastructure. To remain
competitive in light with changes in technology and globalization, Mauritius needs to
improve productivity. Higher education has the capacity, knowledge and research necessary
to help achieve these goals (Sampson, 2004). Education is widely accepted as a leading
instrument for promoting economic growth. The demand within Mauritius for a skilled and
educated workforce will act as a significant encouragement to pursue higher studies. The
financial services and hospitality industries have emerged as new growth sectors, requiring
higher skilled workers. The demand for high-skilled workers is expected to strengthen further
in coming years as the government moves forward to actively promote the development of an
information communications technology sector and free port activities. In line with this, the
government has proposed its plans to invest heavily in higher education and positioning the
island as a learning centre/knowledge hub. A knowledge hub is concerned with the process
of building up a country’s capacity to better integrate it with the world’s increasing
knowledge based economy, whilst simultaneously exploring policy options that have the
potential to enhance economic growth.
For developing countries, to climb out of poverty, growth is essential and one of the main
avenues to achieve this objective is through higher education. A well educated labour force
appears to significantly influence economic growth both as a factor in the production function
and through total factor productivity. We firmly believe that successful economic
development relies heavily on a vibrant and progressive system of higher education. This
paper analyzes the critical role that higher education plays in economic development in
Mauritius. It also focuses on the development of higher education as a key strategy for
economic development.
2 EMPIRICAL EVIDENCE
Most studies on the effects of education on development have used cross-country data and
focused on the growth effects of education (Barro: 1999, Romer: 1990, Gyimah-Brempong et
al : 2006, Mamoon and Murshed: 2009, among others). Others use time series data (e.g. de la
Croix et al : 2008) or cross- state data within a country (Baldwin and Borrelli: 2008) to
investigate the effects of education on income growth. These authors generally find education
to have a positive and significant effect on income growth rate. The growth effect comes
through several channels; among which are the ability to create and absorb new technologies,
improve health, increase savings and investments and the externalities effects of education
(Groweic: 2010).
Toya et al (2010) find a positive relationship between education and income growth in the
world. The positive and significant relationship remained unchanged whether education was
measured as years of education completed at all levels or years of post secondary education
completed. Barro and Lee (2010) find that education as measured by years of schooling
completed by the adult population has a significant growth impact, all things equal. Similarly,
Cohen and Soto (2007) investigate the effects of education on income growth and found that
both initial years of schooling and change in years of schooling have significant positive
impact on income growth in the world.
Similarly, Martinez et al (2010), and Kamara et al (2007) emphasize increased tertiary
education, especially, the production of scientific, technical, and entrepreneurial skills, as a
way to accelerate growth in Africa.
Several studies have shown that the East Asian experience can largely be explained by rapid
increase in investment and heavy expenditure for education. Moreover, Lin (2004) argues
that higher education overall provides a positive and significant affect on Taiwan’s economic
development.
3 CONCEPTUAL FRAMEWORK
The simplest framework which shows the relationship between higher education and
economic growth is illustrated below.
(Source: Bloom, Canning, and Chan, 2005)
From the above, it can be seen that higher education can lead to economic growth through
both private and public channels. Individuals can benefit from higher education through
better employment prospects, higher salaries, and a greater ability to save and invest. The
public benefit is at a macro level and society at large gains from the positive externalities of
higher education. It may create greater tax revenue, increase savings and investment, and lead
to a more entrepreneurial and civic society. Higher earnings for well-educated individuals
raise tax revenues for governments and ease demands on state finances. Education can reduce
poverty and social injustice by providing the underprivileged resources and opportunities for
upward social mobility and social inclusion. Higher education enhances the earnings of
individuals and contributes towards economic development. Since higher education is related
to human development indicators which reflect other dimensions of human poverty, it
significantly reduces infant mortality and increases life expectancy. Empirical evidence from
India indicates that higher education contributes significantly to a reduction in absolute and
relative poverty.
From the figure above, it can be said that although none of these outcomes is inevitable, the
framework does suggest many possible routes through which higher education can benefit
economies.
4 HIGHER EDUCATION AND DEVELOPING ECONOMIES
The World Bank in 1999 published a report on Knowledge for Development that looked at
how developing countries could use knowledge to narrow the income gap with rich world
economies. It clearly showed a correlation between education and improved economic
development. Moreover, the report recommended that developing countries can use higher
education as a catalyst towards economic growth. According to Peck & McGuinness (2003),
knowledge has been the major incentive and foundation for successful economic
development.
Mauritius being a developing country which lacks natural resources such as gold, natural gas,
diamonds, tin, and coal, which could have been a potential advantage. This lucidly spells out
the case for more knowledge-intensive growth, which demands investment in secondary and,
most important, post-secondary education. Thus, to boost up its economy, it has to rely on its
human capital. A country’s competitiveness depends on making the most of its distinctive
and valuable assets.
It is arguable that human capital is the stepping-stone to a viable and growth-promoting
economy. Investment in higher education would assist in the formation of human capital –
the skills and abilities – so vital for assuring sustained economic growth. Human capital
affects growth through multiple channels: by increasing allocative efficiency and the
efficiency
with
which
assets
are
managed,
utilized,
and
maintained;
through
entrepreneurship; and through innovation, which raises productivity, unlocks new investment
opportunities, and enhances export competitiveness. There is an urgent need for developing
countries to acquire the capabilities that will generate new industries that create more
productive jobs, and a wider range of skills. In line with the above, the Keynesian multiplier
theory can be applied. Keynes multiplier helps to explain how we move from one stage of
economic cycle to another. It tells us that a given increase in investment ultimately creates
total income. Suppose that Rs 10 m are invested in higher education, and as a result there is
an increase of Rs 30 m in national income. In this case, income has increased by 3 times, that
is the multiplier is 3.
K = ∆Y
∆I
The multiplier is the numerical co-efficient showing how large an increase in income will
result from each increase in income will result from each increase in investment in higher
education. The increase in national income contributes to a higher GDP per capita and hence
higher economic growth which is measured in terms of GDP is achieved.
Economic growth cannot be engineered when human capital is scarce and of questionable
quality. The importance of human capital is increased by the necessity of moving up the
technological ladder so as to diversify into higher value and research-intensive activities with
good longer-term demand prospects, which promise better returns and are less subject to
competitive pressures. However, this is not the only reason why human capital is becoming
central to a developing economy’s growth strategy. If human capital is effectively optimized,
it would enable developing economies to increase allocative efficiency and maximize the
returns from limited resources. Higher education institutions are a major source for providing
the human capital required for knowledge production. For developing countries, maximizing
productivity and achieving competitiveness will depend upon the success in enhancing the
quality of human capital.
5 RELATIONSHIP BETWEEN HIGHER EDUCATION AND ECONOMIC
GROWTH
The relationship between a knowledge-based economy and economic welfare can be very
strong; provided the right policies are formulated and implemented. Higher education
contributes to economic development in various ways: it helps in the rapid industrialization
of the economy, by providing manpower with professional, technical and managerial skills.
In the present context of transformation of nations into knowledge economies and knowledge
societies, higher education provides not just educated workers, but knowledge workers to the
growth of the economy. It creates attitudes, and makes possible attitudinal changes necessary
for the socialization of the individuals and the transformation of society. Fourthly, higher
education helps, through teaching and research in the creation, absorption and dissemination
of knowledge. Higher education also helps in the formation of a strong economy and at the
same time helps in globalization. Lastly, higher education helps to nurture human resource
development in developing countries and makes a durable contribution to the economic
growth and competitiveness of these economies (World Bank, 1999).
With regard to the benefits of higher education for a country's economy, many observers
attribute India's leap onto the world economic stage as stemming from its decades-long
successful efforts to provide high-quality, technically oriented tertiary education to a
significant number of its citizens. Higher education may also have strong indirect impacts on
economic growth through their effect on the distribution of income, productivity,
entrepreneurial energy, and quality of life, enhances social mobility, encourages political
participation, strengthens civil society, and promotes democratic governance. It does this by
creating public goods such as new knowledge. Economic growth is a powerful determinant of
poverty alleviation and improvements in people’s lives. Higher education’s contribution to
growth, therefore, means better living standards for people at all levels of a society.
As described by Solow (1956), output is a function of factor inputs. For the economy as a
whole there are various ways to analyze the relationship, but the most usual approach would
be to suggest that grow in output (Q) is a function of the growth of inputs of labor (L) and
capital (K) plus an unknown residual or error term (R). Thus the basic equation is: Q= f (L,
K, R).
The residual item is needed because investigations typically find that the growth in output is
greater than the increase in labor and capital in the economy. The unexplained residual is
composed of partly of an increase in human capital, and partly to technological change.
It is believed that higher education contributes to economic growth through the “production
of knowledge” and that is largely takes place in higher education. Moreover, it is generally
acknowledged that post-secondary education contributes to national growth through the
“diffusion of knowledge”. Finally, it is universally accepted that post-secondary institutions
contribute to the “transmission of knowledge” through extensive and varied teaching
activities.
6 REAPING ECONOMIC DEVELOPMENT THROUGH HIGHER
EDUCATION
There are several ways through which education can affect development outcomes. For
example education can increase economic growth through increases in the productivity of
existing resources. It can also create and rapidly diffuse new technologies; improve health
and increase the supply of labour. In addition, because higher education increases labour
income and increases life expectancy, this provides incentives to increase investment in
education and health, further increasing economic growth. Lastly, education improves the
quality and efficiency of institutions, thus leading to higher rates of development.
7 RESEARCH AND TECHNOLOGY TRANSFER
In a knowledge economy, higher education can help economies keep up or catch up with
more technologically advanced societies. Higher education graduates are likely to be more
aware of and better able to use new technologies. They are also more likely to develop new
tools and skills themselves. Their knowledge can also improve the skills and understanding of
the labour force, while the greater confidence and know-how inculcated by higher education
may generate entrepreneurship, with positive effects on employment. Our analysis supports
the idea that expanding tertiary education may promote faster technological catch-up and
improve a country’s ability to maximize its economic output. Higher education helps
transferring knowledge from the university sector to business and industry. Because educated
people are, on the average, quicker to train and adopt new technologies, they tend to be the
innovators in a country. In addition to its direct effect on productivity, education also affects
the rate of innovation and technological improvements.
8 POSITIONING MAURITIUS AS A KNOWLEDGE HUB IN THE ERA OF
GLOBALIZATION
The Mauritian economy enjoyed continuously high and robust growth rates during 1990’s
and the early 2000’s. During this period, the major macroeconomic indicators such as Gross
Domestic Product (GDP), investments, savings rate, balance of payments, inflation and
employment evolved positively; in line with the objectives set to diversify the economic
structure. Such remarkable economic performance by Mauritius was attributed to a
favourable combination of domestic and external factors, namely - political stability,
availability of cheap and adaptable labour, a dynamic export-led strategy, a vibrant tourism
sector.
Increased productivity, quality enhancement, and a shift towards high-technology have
become the pre-requisites to ensure the survival of any country in a dynamic and increasingly
competitive world environment. The increasing pace of technological advance, and constant
international competition call for a new range of policies by Mauritius to meet the increasing
challenges. The strategy to be followed should promote a more diversified level of production
using high technology, make available a knowledge workforce and attract capital to meet the
development needs of the upcoming sectors.
The key to economic success in a globalized world lies increasingly in how effectively a
country can assimilate the available knowledge and build comparative advantage in selected
areas with good growth prospects, and in how it can enlarge the comparative advantage by
pushing the frontiers of higher education (World Bank, 1999).
In this globalization era, every country is demanded to improve itself facing the competition.
The economy which is able to improve itself with increasing human recourses, it will be able
to compete in this competition. Therefore, higher education can play a key role in the
development of Mauritius.
To attract new generation of investment in emerging sectors and to maintain the country’s
competitiveness, a highly productive skilled workforce is imperative.
Since the 1960-1970’s Mauritius has turned around its higher education system. Its gross
tertiary enrollment ratio has risen from 1 per cent to 18 per cent today (THFE,2000). This
growth built on an earlier strengthening of the country's primary and secondary education
systems. The higher education system focuses not just on growth-promoting activities but
also on broader aspects of development.
To monitor its new emphasis on knowledge, the World Bank has created a Knowledge
Economy Index (KEI). This benchmarks countries’ performance on four aspects of the
knowledge economy – the favorability for knowledge development within the economic and
institutional regime; education; innovation; and information and communications technology.
As the Figure below shows, most African countries languish near the bottom of the KEI.
South Africa, Botswana, and Mauritius record scores near the middle, but Nigeria,
Cameroon, Malawi, Tanzania, and others have struggled, scoring less than two out of a
possible ten points.
Figure 1: Knowledge Economy Index
(Source : World Bank Institute (2004))
According to a study by Belli and co-authors (1999), higher education is likely to provide
large benefits to the Mauritian society in terms of increase in wages, higher tax revenues and
a more conducive environment.
An environment conducive for creativity and innovation to help accelerate the process of
economic transformation is also a vital factor. Opportunities for employment in knowledge
intensive industries and a knowledge intensive environment that attract and retain not only
domestic knowledge workers but also from overseas are also important segments of the hub.
The threats of globalization and the erosion of the country’s competitive edge call for a
paradigm shift in the development strategy. Mauritius has now reached another critical phase
of its development.
An acute shortage of skilled labour is being felt in most of the vital sectors of the economy,
which could seriously compromise the actual growth. The demand for labour in Mauritius is
increasingly geared towards higher level skills. This process will be accentuated as Mauritius
moves gradually towards a knowledge-based economy. For its economic survival, moving
away from low skilled and cheap labour to skilled-intensive labour is a necessary prerequisite for Mauritius. Mauritius is aiming to become a knowledge hub in the near future,
thus the development of higher education is of paramount importance. A properly planned
and well-developed knowledge hub, supported by a sound macro-economic policy, is most
likely to result in higher growth rate and would enhance the inflow of FDI and boost up
productivity. Given that the knowledge hub has three major functions in generating,
transferring and applying and transmitting knowledge, the interaction among knowledgeintensive organisations such as universities, research institutes, firms and service providers
has to be close to ensure full benefit from the knowledge-based economy.
Today, there is significant variation of level higher education among countries within the
Indian Ocean region. The table below shows data of Gross Enrolment Rate within the region
in 2009.
Table 1: GER within the region
Country
GER
Cameroon
9.0%
Cape Verde
14.9%
Cote D’Ivoire
8.4%
Ghana
6.2%
Guinea
9.2%
Mauritius
25.9%
Namibia
8.9%
Senegal
8.0%
Burkina Faso
3.4%
Burundi
2.7%
Central African Republic
2.5%
Chad
2.0%
Eritrea
2,0%
Ethiopia
3.6%
Madagascar
3.6%
Malawi
0.5%
Niger
1.4%
Uganda
3.7%
(Source: UNESCO fact sheet, 2010)
This table illustrates the different GER in the African Region. It clearly demonstrates that
Mauritius has the highest GER compared to other countries n the region. This is clearly an
advantage and this should be exploited.
Figure 2: Level of tertiary education participation?
Gross outbound enrolment ratio and gross enrolment ratio for tertiary education, 2008
30
Gross outbound enrolment ratio
25
Gross enrolment ratio
20
15
10
5
Source: UNESCO Institute for Statistics (GED 2010, Statistical Table10).
The figure above shows the GER for tertiary education for few African countries and it
clearly shows that Mauritius has the highest gross enrolment ratio.
9 CONCLUSION
The findings of this paper suggest that more investment in higher education may be justified.
Our analysis suggests that increasing tertiary education may be important in promoting faster
technological catch-up and improving a country’s ability to maximize its economic output.
The Government, as a facilitator, has an important role to play in building the capabilities and
the environment Mauritius needs.
A good way of generating economic growth is through educational development. The basic
importance of education is to enable individuals with knowledge and the ability to apply that
knowledge. Education is therefore commonly regarded as the most direct avenue to rescue a
substantial number of people out of poverty since there is likely to be more employment
opportunities and higher wages for skilled workers. Furthermore, education can enable
children’s attitudes and assists them to grow up with social values that are more beneficial to
the nation and themselves.
Mauritius
Cape Verde
Namibia
Guinea
Cameroon
Senegal
Comoros
Ghana
Congo
Côte d'Ivoire
Seychelles
Sao Tome/Principe
DR Congo
Mali
Togo
Rwanda
Gambia
Uganda
Kenya
Madagascar
Ethiopia
Burundi
Burkina Faso
Chad
C. African Rep.
Eritrea
Niger
Malawi
0
This article challenges the belief that tertiary education has little role in promoting economic
growth. Tertiary education may improve technological catch-up and, in doing so, help to
maximize Mauritius’s potential to achieve its greatest possible economic growth given
current constraints. Investing in tertiary education may accelerate technological diffusion,
which would decrease knowledge gaps and help reduce poverty.
Education alone, of course, cannot transform an economy. The quantity and quality of
investment, domestic and foreign, together with the choice of technology and overall policy
environment, constitute other important determinants of economic performance. The quality
of private entrepreneurs, of public policy-makers and of investment decisions generally, is
bound to be influenced by the level of education. The volume of both domestic and foreign
investment and the rates of total factor productivity will undoubtedly be higher when a
system's human capital level is higher.
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