Working Paper Series: Special Edition of 2016 to 2018 Interns

An empirical study by Benhabib and Spiegel (1994) which ran the growth accounting regressions implied by a Cobb-Douglas aggregate production function using long-term growth series from cross-country estimates of physical and human capital stocks showed that improving education levels has contributed significantly to the growth in Chinese Taipei. Countries with more schooling would be expected on average to have a higher steady-state income, implying that countries that are more educated should be expected to grow faster than those with lower education attainment (Krueger and Lindahl, 2000). In the Caribbean, Francis and Iyare (2006) in a study of Barbados, Jamaica and Trinidad and Tobago found that countries with higher per capita gross national income (GNI) are spending more per capita on education. However, they conclude that improving the level of education appears to have not stimulated the magnitude of development envisaged in these three countries, possibly reflecting the belief that the educational systems in the Caribbean have not been adequately developed. Psacharopoulos and Patrinos (2002) posited that secondary education is more highly rewarding than primary, and tertiary is more highly rewarded than the previous two levels. The private rate of return to education in Barbados ranges from 4.8 to 8.0 per cent, implying that for every dollar spent (of income foregone) on secondary education, there is a return of 4.8 to 8.0 per cent to the individual. Using annual data for the period 1970-2004, Moore (2006) attempts to forecast the effect of expanded university education on national output. Confirming that education attainment influences economic output, he argued that an increase in the number of household university graduates would realise a fall in poverty levels and an increase in the standard of living of Barbados. Though not explicitly studied, the general belief is that these findings would hold for smaller Caribbean nations such as St Vincent and the Grenadines. Data and Methodology The methodology from Barro and Lee (1993), Loening (2005) and Moore (2006) was used to create the three-factor model, which incorporates capital (K) and labour (L) human capital (H) in the Solow Growth Model. This will examine more closely the relationship between education and economic growth in the case of St Vincent and the Grenadines using national aggregate data for the period 1970-2014. Loening (2005) and Moore (2006) utilise an augmented production function operationalised through an error-correction model on single country case studies of Guatemala and Barbados. Use of this type of model is motivated by the need to account for unit roots, which are present in most macroeconomic time series (Moore, 2006).

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