IGCSE Economics 0455 – Economic Development: Differences in Education
Economic Development – Differences in Education between Countries
1. Why education is a key factor in economic development
Education contributes to the development of human capital, which enhances workers’ productivity, encourages innovation and attracts foreign investment. In macro‑economic terms this can be expressed as:
\$Y = A \cdot f(K, L, H)\$
where Y is output, K physical capital, L labour, H human capital (education, skills) and A total factor productivity.
2. Main education indicators used for comparison
Literacy rate – % of population aged 15+ who can read and write.
Gross enrolment ratio (GER) – Total enrolment in a level of education as a % of the relevant age group.
Net enrolment ratio (NER) – Enrolment of the official age group only.
Average years of schooling – Mean number of years of education received by adults.
Public expenditure on education – % of GDP spent on education.
3. Comparative table of education indicators (2023)
Country
Literacy Rate (%)
Average Years of Schooling
Primary GER (%)
Secondary NER (%)
Education Expenditure (% of GDP)
United States
99
13.4
106
88
5.0
Japan
100
15.0
101
95
3.5
United Kingdom
99
13.8
103
90
5.5
Nigeria
62
6.2
78
45
4.2
Bangladesh
74
7.5
85
55
2.8
Ethiopia
49
5.1
70
38
3.0
4. How differences in education affect economic outcomes
Productivity gap – Workers with higher schooling levels can use more advanced technology and produce more output per hour.
Innovation and entrepreneurship – Education fosters skills needed for research & development and for starting new businesses.
Foreign direct investment (FDI) – Multinational firms prefer locations with a skilled labour force.
Income distribution – Better‑educated populations tend to have lower levels of inequality and higher average incomes.
Health and social outcomes – Education improves health awareness, reducing disease burden and increasing labour supply.
5. Illustrative case study: Kenya vs South Korea
South Korea invested heavily in universal primary and secondary education from the 1960s, raising average years of schooling from 3.5 (1970) to 12.5 (2020). This was accompanied by rapid industrialisation and a rise in per‑capita GDP from \$100 to over \$30,000.
Kenya has increased primary enrolment dramatically, but secondary enrolment remains low (NER ≈ 55%). Average years of schooling are about 7.0, and the economy still relies heavily on agriculture, with per‑capita GDP around $1,800.
The contrast demonstrates how sustained investment in education can accelerate structural transformation from agriculture to manufacturing and services.
6. Summary points for revision
Education is a component of human capital; higher human capital raises productivity.
Key indicators: literacy, enrolment ratios, average years of schooling, and public spending.
Developed countries typically have near‑universal literacy, high enrolment, and longer average schooling.
Developing countries often face low literacy, high dropout rates, and limited resources for education.
Improving education can lead to higher GDP per capita, reduced inequality, and greater resilience to economic shocks.
7. Possible exam questions
Explain why education is considered a form of human capital.
Using the table above, compare the education systems of a developed and a developing country and discuss how these differences might affect their economic growth.
Assess the role of government expenditure on education in promoting economic development.
Evaluate the statement: “Higher average years of schooling always lead to higher per‑capita income.”
Suggested diagram: A bar chart comparing literacy rates and average years of schooling for the six countries listed in the table.