Education spending
/Following up to my post yesterday about R&D spending, education is another area of spending that I feel strongly is determinative of future growth.
SOURCE: WORLD BANK, VIETECON.COM
I thought it would be easy to prove. We could just look at the inputs: years of education and/or government spending on education, and use that as a barometer of education. And those countries with higher numbers should have much higher growth. Vietnam actually has fairly high spending on education, at least as a percentage of GDP. It is up there with South Korea and is much higher than Japan (more below).
But looking into it a little bit more, it is not true that education is the be-all, end-all for economic growth. If you look at literacy rates these days, they just don’t determine economic conditions. For example, Georgia (the country, of course) has a literacy rate of 100% (99.59% to be exact). Kuwait has a lower literacy rate of 96%, but has a national income almost 8x as much. Now of course Kuwait is blessed with lots of oil. So let’s look at Spain: literacy rate of 98%. Much richer than Georgia. The European Union overall has a slightly lower literacy rate than Georgia, but of course it’s much richer.
Maybe it is the change in education rather than the absolute level that drives economic growth. China has one of the highest growth rates in the world, and in 1990 only 78% of the population was literate! That means that almost a quarter of the population was not even poorly educated, just not educated. But China has really turned that around. The literacy rate increased to 95% by 2010, and during that period, as China became much better educated, it had extremely high growth rates.
And here there is some data that backs it up. This article seems to show that increases in educational expenditure boosts growth.
Averaging across all studies, the effect of educational expenditure on growth is positive - albeit modest - in the order of a 0.2-0.3% increase in growth for an increase in expenditure by 1% of GDP.
Of course, that looks at all education as if it is the same. But I think that might miss some differences in education quality. This World Bank paper points to a slightly different conclusion – mainly that the outputs (learning achievements) are more important than the inputs.
So basically, we have three things that probably are important here: the absolute level of education (meaning, how much is spent, how many people actually go through education). Then positive changes in education, the change in absolute levels. Finally, we have the underlying quality of the education: are students being taught well.
Well, where does Vietnam stand on these three measures. Actually, quite well. As shown in the charts above, Vietnam is spending a fair amount. Also, literacy rates are high. So the absolute levels are high.
And we have seen a big change in education in the past 40 years that shows a significant upgrade. The percentage of students that make it to the last grade of primary school is well over 95%, up from 46% in 1978 (the War really destroyed and destabilized generations, something that I sometimes forget when thinking about present-day Vietnam). That’s a big difference.
Finally, in terms of quality, the education provided seems to be good. I looked at the PISA* test results for Vietnam and its Asian neighbors to see how the country is doing relatively. Spoiler: really well. Better than the OECD (read: rich countries) average for math and just behind Korea and Japan. Basically similar trends with slight variations for reading and science as well. Plus, Vietnam is well ahead of its developing South East Asian siblings for all three scores. (Just a note, I don’t think that standardized testing is the perfect measure, but at least this gives some indication of how these countries are doing against each other. To read criticism of the tests, here is a good article.)
Looking at GDP growth figures, maybe this explains the lower volatility of growth of Vietnam than of its neighbors. It also helps that the government has been fairly stable since the end of the war (not always the case for its neighbors) and growing from a much lower base. But this speaks well to the potential of Vietnam over time. If they could also invest in R&D, that would be even better.