Education and economic growth

1. Introduction
Korea, Taiwan, and Singapore which are called as NICs have made remarkable economic growth in the world. They have common features those are a few natural resources but competent human resources and powerful leader ship by government. Political leaders have constantly maintained that collectivity values to industrialization through technology transfer from developed countries. NICs have done well on several economic and social counts, however, when compared with the developed countries, there are important development gaps, the main ones being technology, education and democratization. I would like to analyze why NICs succeeded industrialization.

2. Technological change and economic growth
(1)Neoclassical theories
Regarding economic growth, the Harrod-Domarmodel assumed that growth is a function of capital accumulation only. This is in common with the classical tradition than the neoclassical. The production function underlying a generic neoclassical growth model are as follow:

Yi = f(Ki,Li）
Where Yi: output of firm i K: capital of firm i L: labour input of firm i
The traditional neoclassical approach has normally worked with production functions that exhibit diminishing returns to each factor and constant returns to scale overall in order to obtain general equilibrium solutions. Neoclassical theories of economic growth recognised the importance of technological change in promotion growth. However, these theories saw technological change itself as occurring outside the economic system, in other words, that such change was exogenous. The empirical testing of early neoclassical growth theory focused on measuring factors which contributed to the growth of per capita output. These estimations found that economic growth could not be explained by the growth of per labour and capital alone. This factor was termed technological progress. Various argumented neoclassical models have been developed which attempt to explain increasing returns in terms of both technical change and human capital formation, either a new emphasis on knowledge and scientific research effort. Generically, such a model might be based on a production function of the following form:
Yi = g(K,Y)f(Ki,Li)
where Yi is the output of firm i, Ki and Li are the firm's capital and labour inputs, respectively and g(K,Y) represents the spillover effects of cumulative investment or output.

(2)New growth theory
The new set of theories has emphasised the role of technological change in promoting growth. The new growth theory differ from the early growth theories in fundamental way. That is , they treat technological change not as exogenous but as endogenous. A genetic model in this approach might be based on something like this:

Yi = g(H)f(Ki,Hi)
where Yi is the output of firm i, Ki and Hi are the firm's input of physical and human capital respectively, and g(H)represents the external effects of aggregate human capital formation.
They posit that technical change occurs as a result of intentional investment by profit-motivated agents, in R&D sector which produces technological knowledge or ideas. The importance of several types of stimuli are highlighted. The provision of government subsidies is seen as an incentive for private investment in technical change which goes some way towards compensating for external and spill-overs. In addition, free international trade is also seen as providing an essential stimulus, through increasing both size of the market and external competition, for investment in the creation of new ideas.

(3)Natural resources and human resources

Table 1 Exports & Imports item of selected countries
Country Export Import Per Capita GNP($)
Total($b) Food(%) Fuels(%) Machine(%) Total($b) Food(%) Fuels(%) Machine(%)
USA 364 6.8 10.6 73.4 493 5.5 14.7 76.8 21,700
Japan 275 0.5 0.7 85.2 211 14.7 35.7 34.6 25,430
W.Germany 341 26.7 8.9 59.2 270 11.7 12.2 73.4 22,730
S.Korea 62 3.5 2.5 93.8 62 5.3 26.8 67.5 5,400
Singapore 45 4.5 20.9 73.2 50 5.6 17.8 75.2 12,310
Indonesia 22 9.8 54.4 34.6 16 5.6 18.9 75.2 560
Algeria 82 0.2 95.4 4.4 74 24.6 10.9 64.5 2,060
Australia 354 18.9 36.2 21.0 400 4.4 8.2 81.7 17,080
Saudi Arabia 284 1.3 85.7 10.8 212 15.0 2.3 78.1 6,020
Source: Year book of international trade statistics 1989
In accordance with Table 1, comparing with per capita GNP, the countries that have abundant natural resources, Indonesia, Algeria Australia and Saudi Arabia, have less per capita GNP than the countries that have few natural resources, Japan, S.Korea and Singapore. Relatively, developed countries import food and natural resources from developing countries and export machinery & equipment to developing countries. In other words, Japan , Korea and Singapore don't have much natural resources but have much acquired resources and human resources with high level technology.

(4)Technological capability

Table 2 Selected technological capability indicators for eight synthesized levels of technical development
Indicatorslevel 1 Developing countries Level 2 Developing countriesNIC-hoodRecently industrializedOECD industrialized
Traditional Technology First emergenceIslands of modernia'n TechnologyMastery of conventional NIC-hoodTransition to NIC-hood
1.Real Growth(1965-1990)
GDP per capita .5 .5 1.5 2.4 2.5 7.1 2.8 2.5
2.R&D intensity Science/GDP
Public .02 .02 .03 .04 .10 .20 .25 .40
Private 0 0 0 0 0 .02 .04 .05
3.S&E intensity S&E/GDP .2 .2 .4 .8 1.3 1.0 1.0
4.Invention indicators
Invent. import share0 0 .9 .95 .81 .64 .80 .31
Invent. export share0 0 0 0 .05 .10 .20 1.70
Source: Evensong and Westphal(1994) Table 37.1[based on authors' estimates] UNIT 3, page 5
Table 2 shows levels of technological development in the world economy. R & D is very low in level 1 countries. New inventions are also largely non-existing at this level. These countries have not achieved basic levels of technological development. Level 2 developing countries are markedly more advanced in terms of technological development than level 1 countries. The table also shows differences in technological development between developing countries and advanced OECD economies. R & D intensify in the latter is higher, with the difference between level 1 developing countries and OECD countries being very marked. The table 1 and 2 shows that NICs have few natural resources but much human resources with high technology.

(5) The theoretical basis of policy interventions for promoting technological change
The features of industrialization of NICs are aggressive introduction of foreighn capital by government leading. At the early stage of industrialization, NICs have few capital. Therefore, they took policy that attract foreign enterprises s follows:

a. tax exemption for pioneer enterprise.
b. tax exemption for expanding machinery and equipment.
c. provisions of subsidies to the industrial sector.
d. public sector investment in R& D.
In the early stage, technical transfer to NICs consisted mainly of importing capital goods. This often involved turnkey projects under which plant and machinery as well as operating know-how were obtained. This situation contrasts with other successful economies such as Taiwan and Singapore where technology transfer was largely facilitated by direct foreign investment in manufacturing. The government promoted certain industries. These inderstries were generally internationally uncompetitive in the early stages and incentives and subsidies were provided to ensure competitiveness. These strategic industries were often technologically complex, and the incentives enabled firms to undergo the necessary technological learning. Exporting was promoted. Production for international markets entails high levels of competition, and technology upgrading was undertaken to maintain competitiveness.

3.Technology and education
Technological innovation require high level of faculty even though imitation or introduction. The speed and direction of technological innovation can not depending on past accumulation and process. Various factors or action of economic unit decide the process. Presence of dependence on the process means that movement between a technology to onother one or between a system to another one can't do immediately. There is a certain inertia in technology and system then it require considerable time to suit the new situation. When buyers in LDCs obtain technology from sellers in industrialised countries, they rarely have enough knowledge and information to assess the value and suitability of the technology. Firms in developing countries need to invest in human capital to develop the technological capabilities required for absorbing new technology. The school enrolment in Taiwan and Korea are very high from colony era. This fundamental factor contribute to industrialization.

Table 3 Indicators of human resource development in Korea
1953 1960 1970 1980 1987
Literacy rate(%) 22.0 72.1 89.4 * *
Enrollment as percentage of corresponding age group
Element school 59.6 86.2 102.8 101.0 100.2
Middle school 21.1 33.3 53.3 94.6 98.8
High school 12.8 19.9 29.3 68.5 82.8
Source: Ministry of education and McGinn et al. UNIT3 reading page 211

4. Conclusion
It's evident that human resources with education is most important element for economic growth. At the early stage of industrialization performance of machine is not so high compared with today technology. At that time the machine used as substitution of power. Not so high level of technology is required to operate the machine. In that situation, neoclassic theory is suitable to explain the economic growth. In proportion to economic growth, machinery make progress remarkably in complicate and high performance. It requires high technology to operate machinery/equipment. At such stage neoclassical theory can not explain well the economic growth and new growth theory is suitable for the stage. The state intervene in the market for technology development good effect for a certain industrialization as NICs's actual results proved. NICs catch up a certain level of economic growth of development countries. However it is doubtful that NICs attain the status and characters of a first league development country. Because of lacking of their own technology. They learned technology from industrial nations through technical transfer with national system. The state intervene in the market for technology development is effective for a certain level of economic growth but it also weaken real competiveness. Because their R&D ability is fairly low level compared with developed countries.

Bibliography
Item 2 (1)&(2) I quoted directly some sentence and summarized from 4.4 of unit one and 4.1& 4.2 of unit three, Development Economics, Text book of London University

June 1998 Y.Noguchi

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