Impact of Early Education on Economic Growth

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Policy makers have asserted that if a country investment in education then it will recover more than the investment. The economists have proposed many ways on how education impact on the economic growth, not just n individual returns or increase on human capital but also a number of externalities (Lynn Karoly, 2005). For instance in the developed world the most talked about externalities in education is technology innovation hence making labour and capital more income generating and productive.  The purpose of this research works if to find out the impact of early childhood education investment on the social welfare, economic growth and the federal budget.


Many countries have called on the investment in education in order to make them competitive with the aim of filling the jobs in the economy. However, in countries like the United States the advocates of the early childhood education have in the recent past stressed the importance of preschool programs to the economy but it has been difficult to win these short-term investments from the government given the long-term nature of the investment to the country (Committee for Economic Development, 2002).  Most of the economists have claimed that investment in human capital or education is a major source of economic growth to a country. In the last 40 years, the output of the investment in education has risen to 3.5 percent annually. The growth in labour productivity which is a major driver of wage increases and the living standards, has measured about 2.4 percent per year (Committee for Economic Development, 2002). The education contribution to most of the labour market has been estimated to range from 13 to 30 percent of the overall increase. Whatever the education contribution to growth in the past, the investment in education or human capital may rise in importance relatively more to investment in other capital forms as most economies are transiting from a post-industrial to a knowledge-based economy.

The reason why a more educated workforce is likely to lead to an increase in economic growth is because a more educated workforce is more adaptable and mobile and can learn and acquire new skills quickly and easily (Committee for Economic Development, 2002). They can use a wide use of sophisticated technologies that are emerging. They are more creative on how to improve in their work. All these facts would only make a skilled worker more productive than a lowly educated one.  They also enable the employers to organize their workplaces differently and adjust better to changes that are attributed to competition like advances in technology or changes in the demand for consumers.  When a firm performs better with the more educated workforce this can then be easily translated into the economy. Skill begets more skill since workers learn from one another and firms can adapt to technology and utilize their capital to the available skills of their workforce (Committee for Economic Development, 2002). Thus the benefits of having a better educated workforce accrue to everyone both the individual and the organization that they work for. The spillovers f these effects to the firm or the economy may be crucial in increasing the international competitiveness in the global markets.  For instance, if only one company was able to utilize the modern technologies in an economy while the other organizations are not able, then the investment in its business would be assured of profitability. Also, a more educated workforce would result in a reduced crime-ridden and healthier environment with better functioning civil institutions and ensure an increase in the benefits that accrue to the business sector within the surrounding (William, 2006).

In 1957, Robert Solow, a Nobel laureate, claimed that the national income growth have three sources; namely, increases in the physical capital stocks, increase in the labour force size and a residual representing other factors. According to him, the residual considerably contributed to the increase of per capita growth than in the increase in capital stocks. He dubbed the residual “technical process” and claimed that the increase in the level of education were among the factors that contributed to the growth of capital stock (William, 2006). Using the same approach of Robert Solow but clearly accounting for the role of education, Edward Denison estimated the between 1929 and 1982 the increase in the education levels was the source of 16 percent of the total potential growth of output in a non-residential sector of business. A recent study done by Dale Jorgenson ad Kevin Stiroh put the education contribution to growth of the economy at 8.7 percent of the overall growth over the 1959 to 1998 period and 13 percent of the output growth per worker(William, 2006).

Over the last two decades a lot of has attention has been given to the theory of how education may affect the growth of economy and the results will have an implication on how the policy makers will model the impact of increased attainment of education. The exogenous growth studies assume that the short-term impact of increasing the education amount of a worker by 10 percent would lead to in increase in the economic growth by about 4 to 5 percent. In the models used in those studies, an increase in the investment rate leads to an increase in the GDP levels but has no effect on the growth rate of the GDP in the long-run (William, 2006).  In more recent research, using models where growth is endogenous implies that both direct and indirect education effects on growth could be significantly larger. In some of these models, the direct impact of a 10 percent in the education amount that the people get could be 7 to 8 percent as much as what they get. An increase in the investment rate in education could lead to a permanent increase in the growth rate (William, 2006).

The Effect of Preschool Enrollment on Later Educational Attainment

For the purpose of this case study, focus will be on the analysis of the effects of growth that are relative to the project path of growth in absence of a specific preschool policy. The analysis will be on the effect of growth expected from a high quality national preschool program for three- and four-year-old school children. The best evidence about the effects of such interventions on attainment of education is got from a set of small-scale experimental programs that incorporated random assignment and evaluation of participants’ study longitudinally. For this simulation, results from the Perry Preschool Program, this delivered high-quality program to a small group of disadvantaged children in Ypsilanti, Michigan in the 1960s, to find out the magnitude of the high-quality preschool effect (Clie, 2005). These results would then be adjusted for the probable attenuation associated with the deliverance of the program to a broader and less disadvantaged children group.


The Perry Preschool Program availed to the low-income three- to four-year-old disadvantaged children with care for two-and-a-half hours per day, five day per week for 30 weeks annually. The center-base was supplemented on weekly basis with one-and-half hour home visit by the instructor of the children. High quality of the instructor and a remarkable low children-teacher ratio characterized the Perry Program (Clie, 2005). In order to evaluate th.............

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