When Does Education Boost Economic Growth? School Expansion and School Quality in Mexico

Abstract

any economic output effects of school expansion should be studied at an aggregate level. First, economic effects may be more related to the changing social rules of trade and work within modernizing economies, which are increasingly oriented around markets and mass production, not village-based subsistence. Second, aggregate analysis avoids the ecological fallacy of estimating nation-level productivity growth from individual-level correlations between school attainment and wage levels. Initial empirical tests of this institutional model show that educational investments have either small or inconsistent economic effects. However, this work has failed to disaggregate the potential effect of educational quality, (including literacy levels) from the effect of the quantity of schooling available and to disentangle possible effects among different economic sectors. In this paper, we address these issues as they apply to an early period of commercial expansion in Mexico: 1888 to 1940. We found that variation in educational quality had significant effects on manufacturing output but that school expansion (quantity) had inconsistent effects. Educational quality had less consistent effects on output in commercial agriculture. These findings indicate that the human capital model may' be valid for earlier periods of commercial expansion, but only in countries in which schools have attained a threshold level of quality to yield long-term economic effects, and only in urban-based sectors.