Higher Education Financing and Economic Growth Essay (Article)

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Main Points

The author of this article argues that increased government spending on higher education does not cause positive economic growth. Additionally, Vedder (2004) observes that increasing governmental funds for higher education does not necessarily increase the number of students joining college. Throughout the article, the author uses data to show that increasing government spending on higher education has a negative impact on economic growth, and it leads to a decrease in the number of students joining colleges. Finally, the author notes that universities are used only as screening devices to lower information costs for employers when recruiting workforce.

My Opinion

I think the author raises pertinent issues that should be addressed elaborately through scholarly discourse. I agree with the author that increasing government spending on higher education leads to better human capital, hence economic growth seems plausible until one looks critically into the underlying issues. I concur that high economic growth would attract college graduates as opposed to the vice versa argument promoted by conventional thinking on the issue. The author makes an interesting observation that a good portion of funds from the government is directed at non-instructional areas, which do not have a direct impact on economic growth. As such, resources that have been created through high productivity from the private sector are being channeled to institutions with falling productivity. This scenario may explain the negative correlation between increased higher education funding and economic growth. However, the author does not explore cases where increased funding has led to economic growth. Stating that correlation does not prove causation is a weak argument to defend unconventional findings like the ones highlighted in the article.

Reading this article reminded me of a time when I worked at a small NGO with limited resources. Our primary objective was to provide humanitarian support to vulnerable individuals in Kenya. After months of struggling with limited resources, we received sizeable donor funding. In my mind, I assumed that we would help more children to access quality education in line with the set objectives. However, the management decided to move to a larger office with better facilities. Ultimately, only 20 percent of the initial donor funds went to helping children in Kenya. The increased funding from donors did not have the commensurate growth impacts on the firm’s objectives. In his article, Vedder (2004) captures this scenario where increased government spending on higher education does not yield the expected economic growth because allocations are given to non-instructional areas.

Application of the Author’s Points in Practical Sense

The author’s points can be applied practically by ensuring that government funds are used for instructional purposes. This aspect would make sure that such funds have a direct impact on the quality of education provided. Additionally, this move would lower the cost of education, thus allowing more students to join colleges and graduate within the stipulated time. In other words, colleges and universities should stop the rent-seeking mentality where government funds go to third parties not involved directly with the production or consumption of primary university services.

Positive and Negative Externalities

According to Hyman (2014), externalities affect the efficiency of resource allocation in different ways. Negative externalities reduce efficiency. For instance, air pollution caused by the growth of industries and motor vehicle usage means that the government will spend more resources on addressing this problem. Such resources could be used to offer better services to citizens (Jimenez, 2014). On the other hand, positive externalities assist the government to avail improved public services. For instance, companies provide employment, which means employees do not depend largely on the government for support (Dassiou, Langham, Nancarrow, Scharaschkin, & Ward, 2015). Resources saved this way can be directed toward improving service delivery where it is needed.

References

Dassiou, X., Langham, P., Nancarrow, C., Scharaschkin, A., & Ward, D. (2015). Public service markets: Their economics, institutional oversight and regulation. Palgrave Communications, 1(15035), 1-13.

Hyman, D. N. (2014). Public finance: A contemporary application of theory to policy (11th ed.). Stanford, CT: Cengage Learning.

Jimenez, B. S. (2014). Externalities in the fragmented metropolis: Local institutional choices and the efficiency-equity trade-off. The American Review of Public Administration, 46(3), 314-336.

Vedder, R. (2004). Private vs. social returns to higher education: Some new cross-sectional evidence. Journal of Labor Research, 25(4), 677-686.

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IvyPanda. (2020, December 1). Higher Education Financing and Economic Growth. https://ivypanda.com/essays/higher-education-financing-and-economic-growth/

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IvyPanda. (2020) 'Higher Education Financing and Economic Growth'. 1 December.

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IvyPanda. 2020. "Higher Education Financing and Economic Growth." December 1, 2020. https://ivypanda.com/essays/higher-education-financing-and-economic-growth/.

1. IvyPanda. "Higher Education Financing and Economic Growth." December 1, 2020. https://ivypanda.com/essays/higher-education-financing-and-economic-growth/.


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IvyPanda. "Higher Education Financing and Economic Growth." December 1, 2020. https://ivypanda.com/essays/higher-education-financing-and-economic-growth/.

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