The Contribution of Innovation and Education to Economic Growth

This paper surveys and summarises evidence from recent studies into the contributions to economic growth of expenditure on education and on research and development. In the case of education, it has been suggested that social rates of return may differ by gender and by level of schooling, and concerns have been raised over the lack of information on educational quality in international comparisons. There are debates over whether changes in educational attainment ultimately affect the long-run growth rate of the economy, or only the long-run level of output. The macroeconomic evidence on level effects is consistent with microeconomic estimates of private rates of return to schooling. It appears, however, that there are also significant growth effects – the more educated is the workforce, the better is it able to implement technological advances. There is consistent evidence of high social rates of return on research and development in both commercial areas of research and in more fundamental research, implying that R&D is under-resourced. A number of studies have emphasised the importance of international technology spillovers, particularly for smaller economies such as Australia.