Education on Economic Growth: An ARDL Approach to Short-Run and Long-R
Abstract:
This study examines the role of tertiary education in promoting economic growth using an ARDL
model to explore short-run and long-run dynamics. By analyzing World Bank data from 1991 to
2021, we assess the relationship between higher education and GDP growth, focusing on key
factors such as labor force participation and capital formation. The study finds that while tertiary
education has limited short-run effects, its long-term contribution to economic growth is significant.
The results emphasize the importance of quality education and institutional autonomy for sustained
growth.
Introduction:
The relationship between education and economic growth has been a focal point of economic theory
and empirical research. In particular, tertiary education plays a crucial role in equipping the
workforce with skills needed for innovation and productivity growth. This study investigates the
impact of tertiary education on economic growth in Ethiopia, focusing on both short-run and long-run
dynamics through an ARDL model. The research addresses the question: To what extent does
tertiary education contribute to economic growth in the short and long run?
Literature Review:
Existing literature highlights the role of human capital in fostering economic growth. Tertiary
education, in particular, enhances a nation's ability to innovate and improve productivity. Studies
demonstrate that while the short-term impacts of education reforms may be limited, the long-term
effects are often profound. This research integrates insights from two papers, emphasizing both the
quantitative and qualitative dimensions of higher education's influence on growth.
Data and Methodology:
The study uses updated World Bank data from 1991 to 2021 to assess the relationship between
tertiary education and economic growth in Ethiopia. The ARDL model is employed to analyze
short-run and long-run dynamics, with additional unit root tests, co-integration tests, and error
correction modeling (ECM) to validate results. This methodology allows for a nuanced
understanding of how tertiary education influences economic performance over time.
Empirical Results:
The analysis reveals a contrast between the short-run and long-run impacts of tertiary education on
economic growth. In the short run, education reforms may have limited visible effects on GDP
growth, but the long-run analysis shows a positive and significant contribution. Other factors such as
labor force participation and capital formation also influence the observed outcomes. The ARDL
model captures these dynamics effectively, providing a comprehensive understanding of the role of
education in growth.
Discussion:
Beyond the quantitative results, qualitative factors such as educational quality, university autonomy,
and academic freedom play crucial roles in determining the long-term effectiveness of tertiary
education. This section discusses the policy implications of these findings, particularly the need to
improve the alignment between educational outcomes and labor market demands.
Policy Recommendations:
The study recommends a focus on improving the quality of tertiary education, increasing institutional
autonomy, and ensuring that university curricula align with labor market needs. Such reforms can
help maximize the long-term positive impact of higher education on economic growth in Ethiopia.
Conclusion:
This research highlights the significant long-term impact of tertiary education on economic growth,
particularly when quality, institutional autonomy, and labor market alignment are addressed. Future
research should explore additional variables, including technological advancements and regional
disparities, to further refine the understanding of education's role in economic development.
