TY - JOUR
T1 - The total return to higher education
T2 - Is there underinvestment for economic growth and development?
AU - McMahon, Walter W.
N1 - Funding Information:
Walter W. McMahon is Professor of Economics and Professor of Education, both Emeritus, at the University of Illinois in Urbana-Champaign. He thanks Adrian Wood, Chris Colclough, Peter McGregor, Karen Evans, Moses Oketch, Andy Green, James J. Heckman, and US and UK workshop participants for helpful comments and Matt Godinsky for research assistance. This paper did not receive any specific grant from funding agencies although earlier related research was supported by the Spencer Foundation and the LLAKES Centre, London. Only the author is responsible for the result.
Publisher Copyright:
© 2018 Board of Trustees of the University of Illinois
PY - 2018/11
Y1 - 2018/11
N2 - The total return to higher education is the rate of return based on earnings plus non-monetary private and social benefits beyond earnings that captures higher education's contribution to development. A theory of endogenous development is a new scholarly contribution where firm and household production with education externalities and the endogeneity of new ideas leads to an optimal rate of development. This rate is higher than in an economy without these externalities. Since measures of private non-market and social benefit externalities are positive, externalities contribute to higher per capita development. The total return is estimated to be considerably higher than the opportunity cost of funds and the return on physical capital, the first major evidence of serious underinvestment in higher education in the US for optimal development. Policy-relevant treatment effects and policy options with implications for optimal development and for improving the worsening condition of the dissatisfied middle class are considered.
AB - The total return to higher education is the rate of return based on earnings plus non-monetary private and social benefits beyond earnings that captures higher education's contribution to development. A theory of endogenous development is a new scholarly contribution where firm and household production with education externalities and the endogeneity of new ideas leads to an optimal rate of development. This rate is higher than in an economy without these externalities. Since measures of private non-market and social benefit externalities are positive, externalities contribute to higher per capita development. The total return is estimated to be considerably higher than the opportunity cost of funds and the return on physical capital, the first major evidence of serious underinvestment in higher education in the US for optimal development. Policy-relevant treatment effects and policy options with implications for optimal development and for improving the worsening condition of the dissatisfied middle class are considered.
KW - Education externalities
KW - Education for development
KW - Endogenous development
KW - Growth
KW - Human capital
KW - Non-monetary higher education benefits
KW - Social rates of return
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U2 - 10.1016/j.qref.2018.05.005
DO - 10.1016/j.qref.2018.05.005
M3 - Article
AN - SCOPUS:85050165711
SN - 1062-9769
VL - 70
SP - 90
EP - 111
JO - Quarterly Review of Economics and Finance
JF - Quarterly Review of Economics and Finance
ER -