The Role of Education in Chile's Economic Growth

Abstract: This thesis examines empirically whether there is a link between education and economic growth in Chile during the period 1973-2005. This is done through the adoption of time-series analysis and co-integration techniques. Based on economic theory and empirical findings, potential implications for Chilean educational policy are then discussed. This thesis provides further evidence to the theory that education is linked to economic growth via the technology parameter, roughly approximated by total factor productivity, and that Chile constitutes no exception in this area. Consequently, these results give reason to believe that education may be an important influencer of Chile's long-term economic growth and thereby a relevant topic for Chilean economic policy. However, while recent cross-country evidence from World Bank studies suggest that it is the quality rather than the quantity of education that has the largest impact on economic growth, Chile's greatest educational achievements have actually been in terms of quantity rather than quality. This is most evident in the fact that Chile has received international acclaim for its accomplishment in raising the country's average level of schooling, while also receiving significant criticism for its modest improvements in student performance, despite consistent and substantial increases in educational funding. These findings offer several notable insights. Firstly, if the results from these World Bank studies apply to the specific case of Chile, it would appear that Chilean educational policy could be significantly more successful, seen from an economic perspective, than it currently is. Secondly, the fact that consistent and substantial increases in educational expenditure have only been reciprocated by modest progress in student performance, gives reason to believe there may be some in-built inefficiencies in the very design of Chile's educational system.