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Economic Returns to Investment in Education 1

MBA RESEARCH PROJECT

Economic Returns to Investment in Education

(A Study and Comparison of Two Countries Education

Performances, Canada & Saudi Arabia)

By: Ahmed Ghazi

T00538969

Supervisor: Dr. Hasnat Dewan

Second Reader: Dr. Muhammad Mohiuddin

Thompson Rivers University School of Business & Economics


Economic Returns to Investment in Education 2

Acknowledgment

To my wife Nusaibah, who have stood by my side and supported me with everything during my

MBA journey, with passion and help.

To respected Dr. Hasnat Dewan, I would like to express my sincere gratitude to my academic

supervisor, who has encouraged me through my educational path and have been of ongoing

guidance and assistance along the way. Big thanks for your patience, help, and for the trust you

have always had in me.

To respected Dr. Muhammad Mohiuddin, who was a very important help and guidance to me

through this research.


Economic Returns to Investment in Education 3

TABLE OF CONTENTS

Table of Contents ........................................................................................................................... 3

Table of Figures .............................................................................................................................. 5

Table of Tables ............................................................................................................................... 6

Table of Graphs .............................................................................................................................. 6

Executive Summary ....................................................................................................................... 7

Research Questions ........................................................................................................................ 9

Research Method ............................................................................................................................ 9

Data Collection ............................................................................................................................... 9

Type of Research .......................................................................................................................... 10

Time Frame ................................................................................................................................... 10

Introduction and Problem Outline in Saudi Education System .............................................. 11

Literature Review ......................................................................................................................... 13

Financial Returns .................................................................................................................................. 13

Improving Human Capital and Productivity ..................................................................................... 22

Income Growth...................................................................................................................................... 29

Education and Poverty Reduction ....................................................................................................... 33

Literature Review Findings Summary ....................................................................................... 35

Methodology ................................................................................................................................. 41

Research Method .................................................................................................................................. 41

Data Collection ...................................................................................................................................... 41


Economic Returns to Investment in Education 4

Data Analysis ......................................................................................................................................... 42

Research Analysis ......................................................................................................................... 42

Data Analysis ......................................................................................................................................... 42

Financial Data Analysis ........................................................................................................................ 43

Description of The Data...................................................................................................................... 43

Data Found ............................................................................................................................................ 44

CANADA DATA (21 years) .............................................................................................................. 44

SAUDI ARABIA DATA (21 years)................................................................................................... 45

Regression Results Details .................................................................................................................... 45

List of Regression Analysis................................................................................................................... 46

Canada Regressions: ........................................................................................................................... 46

Saudi Arabia Regressions: .................................................................................................................. 51

Data Comparison: ................................................................................................................................. 55

Descriptive Statistics:............................................................................................................................ 56

Non-financial Factors Analysis ............................................................................................................ 58

Educational Policies and Curriculum Design Canada & Saudi Arabia Comparison....................... 58

Saudi Education System, Pros and Cones and Recommendations ..................................................... 60

Research Conclusion .................................................................................................................... 67

Bibliography ..................................................................................... Error! Bookmark not defined.


Economic Returns to Investment in Education 5

TABLE OF FIGURES

Figure 1:CANADA DATA (21 YEARS) ...................................................................................... 44

Figure 2: SAUDI ARABIA DATA (21 YEARS) .......................................................................... 45

Figure 3: Regression 1 - (Y :Exp. on Education Vs. Xs: GDP & Population) .............................. 46

Figure 4: Regression 2 - (Multi Regressions, Y:Mean Yrs. School Vs. Xs: GDP, Population, Edu.

Exp.) ....................................................................................................................................... 47

Figure 5: Regression 3- (Multi Regressions, Y: HDI, Vs. Xs: Population, Time 1-21, Edu. Exp.)

................................................................................................................................................ 48

Figure 6: Regression 4- (Multi Regressions, Y: HDI, Vs. Xs: Time 1 - 21 & Edu. Exp.) ............ 49

Figure 7: Regression 5 - (Multi Regressions, Y: HDI, Vs. X: Edu. Exp.) ..................................... 49

Figure 8: Regression 6 - (Y: Edu. Exp. per Cap, Vs. X: GDP per Cap.) ....................................... 50

Figure 9: Regression 7- (Y: GDP per Cap., Vs. X: Edu. Exp. As % of GDP)............................... 50

Figure 10: Regression 1- (Y: Exp. On Education Vs. Xs: GDP & Population)............................. 51

Figure 11: Regression 2 - (Multi Regressions, Y: Mean Yrs. School Vs. Xs: GDP, Population,

Edu. Exp.)............................................................................................................................... 51

Figure 12: Regression 3 - (Multi Regressions, Y: HDI, Vs. Xs: Population, Time 1- 21, Edu.

Exp.) ....................................................................................................................................... 52

Figure 13:Regression 4- (Multi Regressions, Y: HDI, Vs. Xs: Time 1-21, & Edu. Exp.) ............ 53

Figure 14: Regression 5- (Multi Regressions, Y: HDI, Vs. X: Edu. Exp.) .................................... 53

Figure 15: Regression 6- (Y: Edu. Exp. per Cap, Vs. X: GDP per Cap.) ...................................... 54

Figure 16: Regression 7- (Y: GDP per Cap., Vs. X: Edu. Exp. As % of GDP)............................. 54
Economic Returns to Investment in Education 6

TABLE OF TABLES

Table 1:Table 1Literature Review Findings Summary .................................................................. 35

Table 2:Independent Variable (Expenditure on Education) ........................................................... 55

Table 3:Independent Variable: Mean Years of Schooling ............................................................. 55

Table 4:Independent Variable: HDI ............................................................................................... 55

TABLE OF GRAPHS

Graph 1: GDP & Edu. Exp. (Canada) ............................................................................................ 56

Graph 2: GDP & Edu. Exp. (Saudi Arabia) ................................................................................... 56

Graph 3: GDP ( Canada Vs. Saudi)................................................................................................ 57

Graph 4: Edu. Exp. $US (Canada Vs. Saudi)................................................................................. 57


Economic Returns to Investment in Education 7

Economic Returns to Investment in Education

(A Study and Comparison of Two Countries Education Performances, Canada & Saudi

Arabia)

EXECUTIVE SUMMARY

Education is a fundamental factor of development and productivity, it has an impact

on individual incomes and it is a key to developing a healthier and better life to people around the

world. Countries of which investing more on education tend to have better outcomes in many areas,

on top of these areas comes the great financial returns. Moreover, it has been proven that

educational investment in most countries would bring benefits in many ways, such as creating more

jobs, improving the human capital and providing new financial returns.

This project is meant to examine several countries performance in education investment, in

order to provide a detailed examination and findings into, mainly, the relationship between

investing on education and financial returns, and also the link between investing on education and

poverty reduction, human development, income increase, and mean years of schooling. The

research analyzes the investment on education, for at least 21 years, in two high income countries,

in which one have very high level of Human Development Index, and the other one have relatively

lower Human Development Index, in order to achieve accurate results. The country in the first

category is Canada. It has been consistently ranking high in education rank worldwide for the last

decade. The other country is Saudi, who have focused recently on investing in education. The

elements of this study are measurement of financial returns, improvement in human capital, income

growth, education and productivity.


Economic Returns to Investment in Education 8

A Regression model with historical data of twenty-one years was created to determine the

effects of investing and spending on education on economic growth, productivity and schooling

years. The findings from the study indicate that a significant and positive relationship exists

between all variables. They highlight the importance of investing on education as a key factor to

great economic returns. This study creates a sort of foundation for further research into examining

the detailed in the relationship between education and economic returns.

Another important part of this research is the qualitative analysis, where many facts are

discussed to determine the reality of education in both countries. A comparison is a key here, where

we can figure out pros and cons in each system, and also the important elements and advantages

that each country has focused on and has caused improvement in the education system.
Economic Returns to Investment in Education 9

RESEARCH QUESTIONS

This study will investigate some relevant variables to answer the following main questions:

- How investment in education is expected to improve economic growth?

- To how far can educational investment create jobs?

- How investing on education can improve human capital and productivity?

- What are the factors that each country has used to improve the education, and how can the other

country benefit from these factors?

RESEARCH METHOD

The methodology in this research will apply both qualitative and quantitative data. More

focus on qualitative by approximately 60% and a little focus on quantitative by 40% and will be

mostly used to improve the recommendations and solutions, besides supporting the findings of the

literature review. The collected data will be used to describe and test relationships as well as used

for examining relationships causes and effects in both targeted countries, Canada and Saudi Arabia.

DATA COLLECTION

Basically, All the gathered data originated from secondary research and resources that

included a combination of qualitative and quantitative research. The data that will be provided in

this research is a combination of quantitative and qualitative data as mentioned before. The

quantitative part will be secondary data. This data will be collected from different sources that play

significant roles in finding answers to the research questions, such as UN Data, Ministry of

Education, Statistics Canada, Ministry of Economy and Planning, World Bank Data, OECD Data,
Economic Returns to Investment in Education 10

and several reliable websites, journal articles and previous studies. A great help was provided from

TRU librarian during the process of collecting the needed data. Moreover, qualitative data is

collected from peer-reviewed journals, reports, books and the Internet.

TYPE OF RESEARCH

This business research is conducted without a specific decision in mind, so it is a basic type

research. The purpose, however, is to see how educational investment and educational businesses

can impact the overall economy in detailed vision that would help decision makers in the field.

TIME FRAME

The expected time frame for this research is going to be approximately five months as the

expected completion to be in July 2017. The first two months will be used in gathering and

collecting data from relevant sources. Data collecting will require having contacts with e-services

department in different ministries to dig deeper and find old data, as the ministries websites dont

show enough data. Later on, the analysis of the collected data will follow for the next three months.

It will be done on an ongoing basis after collecting the needed qualitative and quantitative data.

However, after having completed data analysis, providing and improving recommendations

and solutions will be during the last period of the research timeframe. Hence, some related and

important questions have to be answered in order to improve the recommendations, such as should

Saudi government invest more in primary education or higher education, should they spend more

on supporting private education sectors and should the Ministry of Education keep spending money
Economic Returns to Investment in Education 11

on international higher education scholarship program.

INTRODUCTION AND PROBLEM OUTLINE IN SAUDI EDUCATION

SYSTEM

As the world has recently faced a radical decrease in the oil prices, Saudi Arabia has

struggled the most since it is the world's largest oil exporter and producer. The economy, in general,

in Saudi Arabia is based on oil. In fact, oil revenues accounts for 90% of the country's exports and

almost 80% of the government revenues; and the oil industry accounts for 45% of Saudi Arabias

GDP (Basri, 2013). This issue has made a huge deficit in the Saudi budget during the last year, as

the Ministry of Finances statement about the national budget for 2016 shows, and it is expected to

continue in the future if nothing has changed (Ministry of Finance, 2015).

Based on the previous fact, studying the alternatives that would improve the economy is an

important step in order to save the countrys economy. One of the most useful and important

alternatives is studying the impact of the educational businesses on the economic growth in Saudi

Arabia. The government has provided a plan, in 2016, which demonstrates the governments

ongoing attempts to increase long-term non-oil development through several focused investment

programs; education is one of the focuses (U.S.-Saudi Arabian Council, 2015).

This research will study how the educational investments would provide a solution to the

economy. This solution includes the four main elements of this study: financial returns of

educational investment, improving human capital, income growth and the impact of educational

technology investment.
Economic Returns to Investment in Education 12

Additionally, and as part of the expected recommendations, this research will look into the

successful educational tips and ideas in Canada, and then study the idea of customizing these

programs to the Saudi culture, values and traditions. At the end, we will see how customizing and

using these programs in Saudi Arabia will increase the economic growth.
Economic Returns to Investment in Education 13

LITERATURE REVIEW

The following literature review will examine the importance of educational investments in

terms of promoting economic growth, and specifically will discuss the four economic growth signs

that are the measurement keys for this research; financial returns, improving human capital and

productivity, income growth and increasing the impact of educational technology investment.

Seeking information based on these measurement keys will help the decision makers in making

final decision, and it will be discussed in details in the following points:

Financial Returns

Regarding financial returns, it will involve collecting and examining historical data to gain

information about the current and future financial health of educational investment. Thus, the study

will conclude with a clear analysis that will give us an idea about the size of the expected fiscal

revenue.

The report Returns to schooling around the world, World Development Report 2013

serves as a background paper for the world development report and is intended to find specific,

detailed and measurable outcomes of the capital investments made in the educational sector for

countries around the world. The studies regarding investment outcomes for schooling are not new.

They have been going on for quite some time, since the 1950s. However, they have rarely been

accurate. This new study aims to analyze empirical results as well as define dependent and

independent variables in an effort to summarize measurable outcomes of educational investments

across the globe and the significance of these returns on the respective countries.
Economic Returns to Investment in Education 14

Education, according to the study is the single most important variable that drives economic

growth, reduces unemployment and poverty, as well as bringing in several social and non-

economic benefits. A majority of the studies done so far in the field have focused on schoolings

contribution to the mentioned variables.

Moreover, the report also offers unique insights or observations after studying and

generalizing the data across the board. One observation indicates that private returns to schooling

are generally positive as compared to public schools. This might have to do with the

disproportionately high capital investment into the private school system. Additionally, this trend

is congruent across most of the countries surveyed in the study. Another observation indicates that

the rates of return are much higher for low or middle-income economies as compared to

industrialized economies. This is not surprising as most of the industrialized economies have

stagnant growth rates and very low real or potential growth year-to-year. The developing

economies have a pride in a much higher rate of return due to the increasing parity of labour quality

and higher capital investment in key industries. Finally, the returns in question seem to be highest

at the primary schooling level. Afterwards, the returns level off during the secondary and tertiary

levels of education.

As with observations, the study also draws certain conclusions based on the analysis of

information. One of the biggest findings in the study implies that estimated returns from schooling

are proportionally higher for women as compared to men. This point raises some interesting

questions, while also providing an indicator regarding the higher optimization of resources when

it comes to educating women. Additionally, it clashes with social biases and norms in certain
Economic Returns to Investment in Education 15

communities where women are overlooked or sometimes even prohibited from accessing

education. From the data provided in the study, this certainly seems to be the case in many of the

developing countries surveyed. Another conclusion points out that returns to schooling have

declined in the past few decades, on average. However, the decline has been at most modest,

suggesting a gradual leveling-off as opposed to a steep drop in rates of return. The report implies

this is due to constant increase in labor productivity that goes hand-in-hand with the increased labor

demand.

On the other hand, while the study posts some interesting and unique findings, it is not

without certain limitations. The main issue being that the study might not be strictly comparable to

other clusters of studies done previously and does not have a peer to validate its findings. A second

problem is research methodologies used to identify or calculate certain variables, which affected

the course of the study. Since researchers rarely use the same methods for calculation, the results

between two similar studies can vary greatly and provide alternate outcomes. This definitely raises

a question mark for the validity of test results and resulting conclusion. Additionally, since this is

a very large survey including hundreds of households and spread across many targeted countries,

there is no clear way to ascertain that the sample populations used for the study were completely

random. Often for such studies, researchers have to test sub-populations rather than randomized

subjects, and this can skew test results in one direction or the other. This is mostly due to sub-

populations being less expensive and easier to reach. Even the best studies are susceptible to

limitations and this should in no way take away from the validity of this study. However, since the

results are slightly questionable, we have decided to research, analyze and include more studies

and findings in our report to substantially back-up our observations.


Economic Returns to Investment in Education 16

An Analysis of the World Education Indicators by UNESCO talks about the changing of

economic and social conditions that have made education the top priority for many nations

worldwide. It indicates that there is now more societal and political pressure on making sustainable

investments in the education sector so as to secure our future when it comes to human capital

investment. The article also puts forward an interesting dilemma that many nations face; measuring

the growth, progress and standing of their educational systems when compared to other countries.

Due to this, many nations have actually started collecting comparative statistics and indicators to

measure performance. The OECD countries and UNESCO have even started pooling their

resources and expertise to develop and standardize said performance indicators.

Regarding the measurements of this study, one of the most comprehensive ways to measure

the direct impact of education is by considering a nations gross domestic product (GDP). While

GDP is not a perfect reflection of economic well-being, constant GDP growth does lead to the

higher economic output which has been closely linked with a better standard of living. While GDP

can satisfactorily represent economic well-being, it fails to record the significance of non-economic

activities such as parenting, which is a huge influence on behavior, emotional intelligence, and

well-being.

The link between education, human capital, and economic growth can be efficiently

measured by analyzing variables such as physical capital, resources, educational infrastructure and

in some cases proxy variables such as social and institutional paradigms. Studies were performed

by looking at developed and developing countries, using the aforementioned variables. For the
Economic Returns to Investment in Education 17

purpose of the report, however, the relationship between WEI and OECD countries has been

explained a bit differently. Human capital has had the most impact in the economic growth of WEI

countries. The study found that on average, human capital accounted for half a percent of annual

growth in these countries. By comparison, only Greece, Italy, and Spain boast similarly high annual

growth rates. The link between human capital and economic growth has proven to be strongest in

countries such as Argentina, Philippines, Uruguay, and Malaysia over the past decade. Similarly,

countries such as India and Tunisia have made rapid advances in providing a modern educational

infrastructure that closely mimics that of OECD countries in the last decade. The study establishes

a clear link between advanced human capital and optimization of available resources. Even though

the WEI countries have comparatively thinner resources, they boast a higher economic growth rate.

As such, the only way this dissonance can be explained is through factoring in quality of human

capital.

Furthermore, the study talks about how educational access should be equitable for it to

result in the greatest amount of good for the greatest amount of people. For a lot of low income

households in developing countries, prioritizing education involves diverting their resources from

other important expenses. Additionally, they cannot bear the cost of sending their children to

private school. From the analysis, we know that there is a clear difference between the quality of

education among private and public-school systems across WEI countries. By providing equal

access to everyone regardless of class, creed or economic disposition, we are creating a society that

values equality. The study notes that it is imperative for school systems to be uniform across the

board when it comes to providing quality education. As such, this study serves as an important

document for my own research regarding investment in education and the supposed benefits it
Economic Returns to Investment in Education 18

yields. (Financing Education Investments and Returns, 2002) same as: An Analysis of the World

Education Indicators by UNESCO http://uis.unesco.org/sites/default/files/documents/financing-

education-investments-and-returns-executive-summary-2002-en_3.pdf

Economic Returns to Investment in Education, 2004 serves as an excellent source of

quantitative research and provides ample analytical samples and evidence to support the advent of

increased funding in the educational sector and its impact on infrastructure, GDP growth and

economic prosperity. Additionally, the report examines the non-economic, although just as crucial

impact of education on the quality of human life. The report is divided into three sections; the first

examines the relationship between education and economic growth, the second discerns the trend

between education and income distribution while the third covers the impact of education on

poverty. The report covers these three relationships in extensive detail, and analyses the dynamic

that closely connects all three concepts. MENA, which refers to Middle-East and North Africa

countries serve as the focal point of this study, with their rapid economic growth in recent years

due to the oil boom and consequent structural changes.

The MENA countries make for an interesting study subject for this report due to the fact

that they experienced tremendous economic growth in the 1990s and 2000s, though this growth

has marginally leveled off in recent years. As a result, countries like the UAE have an

overdeveloped oil industry, yet not enough supporting infrastructure or other industries to make it

a global player. Most of the labor in the country comes from overseas, and it is actually a common

trend across most of the countries in the region. Given these conditions and the surrounding

atmosphere, it would be really interesting to observe the relationship between human capital
Economic Returns to Investment in Education 19

(through investment in education) and economic growth. There was a time of heavy educational

investment in some of the East Asian countries in the 1960s, which led to rapid economic growth

and higher levels of human capital.

In summing up, improved educational efficiency will directly result in increased economic

growth, a more equitable income distribution and alleviation of poverty. Yet it is by no means

sufficient. Relevant government policies and structures also need to be in place to sustain and

improve on such results while also building supportive infrastructure, related industries and

technology to continue this upward trend and create tremendous human capital with endless

possibilities.

Returns to Investment in Education: A Further Update builds on the information and

analysis provided by its predecessor and provides an inkling to the human capital theory and its

real-world effect on economic growth.

The human capital theory has been in existence since the 1950s, and was used to estimate

returns of education on national growth. In all the time that the theory has been in existence, there

have been several reviews that tried to establish a pattern in all the empirical studies that were

conducted, in an effort to better understand how the two concepts correlated with each other.

However, since there are more and more variables to be established as contributors of economic

growth, the report takes them into consideration as well, thus laying down the groundwork for an

extremely well detailed and subversive algorithm to calculate educations impact on economic

growth.
Economic Returns to Investment in Education 20

The report aims to establish certain patterns in order to identify some unique trends, which

predict the current influence of education on aforementioned variables. The report makes some

interesting observations from its analysis on establishing returns gained from education.

Apparently, private returns tend to be higher than social returns in industrialized countries that

were surveyed for the report. This information implies that returns gained from private schooling

exceed returns gained from public schooling. On the surface, it does make more sense as private

schools charge more money in fees, and are autonomous in their application of curriculum, thus

possessing more flexibility to apply their own practices. However, after considering the enormous

capital invested by the government in industrialized countries in addition to all the special programs

or supporting institutions funded through communal support, this observation does need more

analysis to fully be understood. This second piece of evidence would pertain to the micro-economic

aspect of the country, as this is a trend that has been observed on an institutional level. As for

developing countries, a more detailed mechanism for measuring effectiveness is needed, as the

variables currently being used to calculate economic returns are too broad and vague. A quasi-

experimental study has been recommended in the report, intended to be carried out in developing

countries, so as to identify unique patterns which are otherwise not clearly discernible at this point.

This may be due to the tremendous growth some developing countries are experiencing from their

industrialization, and as such it is impossible to isolate the growth factors resulting from education

and those from other focused economic activities.

Out of this view, and to highlight the role of education in economic development:

Successful and quality education relies on quite a number of factors. These factors are either
Economic Returns to Investment in Education 21

qualitative or quantitative which varies from provision of funding to support education to

curriculum development, support and training of teachers and start age for primary education. The

provision of qualitative education to most people can only be achieved through the involvement of

both public and private educational sectors. Thus, education can also be seen as vital component

of growth and development-as input to the aggregate production function. Furthermore, the dual

role education plays as both inputs and outputs gives its central importance in economic

development (Psacharopoulos, 1994).

From this same previous study, this research showed that in developing countries

investment in primary education continues to be the number one priority of government. However,

the returns in primary education declined by the level of schooling and the country's per capita

income. His research also revealed that investment in women's education is in general more

profitable than that for men; returns are higher in private competitive sector of the economy than

among those working in the public sector. His study also showed that the public financing of higher

education is regressive unlike investment in primary education, which has consistently and

increasingly received financing by the government. These findings are discussed later on in this

study within the context of controversies in the field, concluding that investment in education

continues to be a very attractive investment opportunity in the world today, both from the private

and the social point of view. (Psacharopoulos, 1994)

When taking about the government role and expenditure on educational investment, from

this view: The irony is that the more unprofitable a given level of education becomes as a terminal

point, the greater the demand among the elite for it as an intermediate stage or precondition to the
Economic Returns to Investment in Education 22

next level of education! This puts great pressure on governments to expand educational facilities

at all levels to meet the growing demand They need to cover the education demand in order to

gain educated citizens who would play important role in improving the economy Countries that

have developed successfully have generally ensured that educational benefits are more broadly

available in the economy to the poor as well as the rich, in a rural areas as well as the urban

(Todaro & Smith, 2015)

Out of this view, Aghion, Boustan, Hoxby, and Vandenbussche (2009) found that

educational investment affects growth on the private returns to individuals' greater human capital.

In addition, a variety of externalities would be affected too. For example, in highly developed

countries, education investments foster technological innovation, thereby making capital and labor

more productive, and it will be generating income growth.

Improving Human Capital and productivity

This key measure the impact of educational investments in the labor skills and knowledge, and

how valuable they are to the nation. Measuring the human resources development is important in

this research as it refers to knowledge, skills, and abilities acquired by individual through

education.

Education, according to the study Returns to schooling around the world, World Development

Report 2013 is the single most important variable that drives economic growth, reduces

unemployment and poverty. Also, the developing economies have a pride in a much higher rate of

return due to the increasing parity of labour quality and higher capital investment in key industries.
Economic Returns to Investment in Education 23

An Analysis of the World Education Indicators by UNESCO talks about the changing of

economic and social conditions that have made education the top priority for many nations

worldwide. While human capital has always been the key to reducing unemployment and boosting

productivity rates, new evidence has pointed to other non-economic benefits as well including an

improvement in health and a higher sense of physical well-being. As such, there is now more

societal and political pressure on making sustainable investments in the education sector so as to

secure our future when it comes to human capital investment.

Recent advances in technology and infrastructure, globalization of economic activities, and have

naturally increased the burden on educational systems to provide support and guidance in the

development of human capital. Education is now seen as an investment in the collective future of

societies and nations, and as such is focus of tremendous capital investments and grants. However,

great expectations alone do not yield great results. To successfully produce satisfactory results, a

good understanding on the nature of human capital and the resources required to ensure its adequate

supply is required. The report also broadly quantifies human capital as the knowledge, skills, and

competencies that facilitate economic, social, and physical well-being. The report also

substantiates how better educated people are more likely to be employed and part of the workforce.

And even though this can come as no surprise, the report does establish a clear link between higher

education levels and better wage rates.

The report Education at a Glance (2016) provides a clear and interesting explanation in answering

the question: HOW DOES EDUCATIONAL ATTAINMENT AFFECT PARTICIPATION IN THE LABOUR MARKET?
Economic Returns to Investment in Education 24

Thus, the answer of this question has many points to cover the whole idea of its aspect. While

previous research from different topics has successfully established that higher educational

attainment yields greater monetary benefits, this report provides supplementary data to enforce that

notion on a macroeconomic level. As an example, the report cites that the average unemployment

rates from the countries surveyed for people with below secondary education are 12.4%. In those

same countries, unemployment rates for people with tertiary education stands at 4.9%. On the

surface, this represents a big difference in workforce participation, even before considering the

structural and frictional types of unemployment. Additionally, across the countries surveyed, men

on average boasted higher employment rates than women. However, when we consider countries

with higher levels of education, this gap shrinks greatly. The report conclusively shows graphs and

trend lines to support this explanation. Finally, the report establishes a pattern through the different

faculties of study and cross-references employment rates for said faculties. The sciences,

technology, construction, and manufacturing have greater employment rates on average than

humanities, languages, and the arts. In growing economies, this is a common trend as these fields

of education produce jobs better suited for higher GDP growth.

The OECD countries, the Organization for Economic Cooperation and Development, are some of

the most highly industrialized economies in the world. To maintain their dominance in the global

marketplace, these countries require a constant supply of highly skilled labor. The expanded

education opportunities have increased this pool of workers, and since they boast skills desirable

by most employers, are more likely to find jobs. On the other hand, people with lower educational

levels are relegated to working menial or support jobs to people more highly educated than them.

Also, they stand a greater risk of being unemployed due to shifts in the economic system. Being
Economic Returns to Investment in Education 25

directly related to each other, shifts in the labour market create ripples in the greater society. As

demand for labour grows, employers expect a greater skill-set from their workers. As technology

continues to supplement or replace most aspects of business, employers similarly expect potential

employees to have rudimentary knowledge of said technology. In this case, education can become

the great equalizer, as it can lead to people getting similar opportunities, acquiring similar

knowledge, and providing similar avenues of growth. In some OECD countries, it might be

necessary to boost female workplace participation rates in order to boost productivity, as these

countries have abnormally disparaging gender rates of employment. As the full potential of women

is not exploited after their schooling, the countries in question are forgoing on immense potential

skilled-labor. Traditional gender roles, including family planning, and children are preventing

women from realizing their full potential. Education can provide a bridge to close the gap between

conservatism and progressivism.

The report clearly demonstrates and investigates employment rates of different economies,

relative to educational attainment. Analysis in our report will extensively study trends in this

information and will look to discuss relevant conclusions.

Attainment of higher education requires countless sacrifices on the part of the individual,

including time, money, and effort. Looking at this from a different angle, it can be seen as an

investment in human capital. With the economy as it is, and the much higher competition

experienced by millennial to be a part of the workforce, perhaps higher education is the answer,

and it makes sense for them to delay their labour market activities for some time. While these

factors make higher education attractive on a microeconomic level, there is something to be said
Economic Returns to Investment in Education 26

for macroeconomic benefits too. Countries benefit from having an abundance of well-educated

high earners. Not only do they stimulate the economy through higher spending, they also reduce

government costs as they do not depend on social welfare, public benefit programs and make

greater tax contributions.

According to a research by Hanushek & Woessmann (2010), there is strong evidence that

the cognitive skills of the population rather than mere school attainment - are powerfully related

to long-run economic growth. The relationship between skills and growth proves extremely robust

in empirical applications. The effect of skills is complementary to the quality of economic

institutions (Hanushek & Woessmann, 2010)

In addition, it can also be enhanced by continued and focused education (Becker 1964).

Human capital productivity can be improved through education and labor market experience

(Mincer & Polachek 1974).

An early study by Nelson, Richard and Phelps (1966) shows that a more educated labor

force would imitate frontier technology faster. In addition, Benhabib and Spiegal (1994) have

expanded on their work, arguing that a more educated labor force would also innovate faster. Also,

Lucas (1988) observed that the accumulation of human capital could increase the productivity of

other factors and thereby raise growth.


Economic Returns to Investment in Education 27

In respect of the impact of education on the future workers productivity, educational and business

leaders have agreed on that one of the main objectives of educational investments is to prepare

students for a productive work life (Timpane & MeNeill, 1991).

Education is a basic objective of development and it is an important end in itself. It is

essential for a satisfying and rewarding life and a fundamental to the broader nation of expanded

human capabilities that lie at the heart of the meaning of development. Therefore, the need for

quality education to spur economic growth cannot be over-emphasized. (Todaro & Smith, 2015).

Out of this view, it is fundamental to enhancing the quality of human life and increasing

social and economic progress. (United Nations, Report on the World Social Situation, 1997).

Hence, Human Capital must therefore, be given direct attention in its own right, especially

in developing economies to encourage long term economic growth. Aside the many direct benefits

that educated persons are likely to have, they also benefit the community through innovation.

(Todaro & Smith, 2015).

Previous studies have also shown that health and education contribute directly to well-

being, therefore, the impact of human capital investments in developing countries can be quite

substantial (Psacharopoulos, 1994).

Figure 8.1, with the title: (Age-earnings profiles by level of education) in Venezuela,

studying the indirect and direct costs of education and the income later, comparing it with
Economic Returns to Investment in Education 28

uneducated workers income who started working at early age. Overall, the chart describes that

incomes vary depends on people level of education. It declares the fact that people with higher

education start working on full-time jobs later comparing with people with less education level.

However, the higher educated group start with greater wages. (Todaro & Smith, 2015).

Education plays a key role in the ability of a developing country to absorb modern

technology and to develop the capacity for self-sustaining growth and development Education

demonstrates its importance to economic growth as a contributor to human development,

production quality, and technology advancement (Adriente & Guiking, 2015).

As part of the improvement through educational investment, improving students

technology abilities and skills is important part in terms of achieving the highest benefit of any

educational investment. In (2002) Ringstaff & Kelley have explained that the main aim of investing

in educational technology is to serve the goal of increasing students' basic skills and knowledge,

so that students use the technology as a resource to help them develop higher order thinking,

creativity, research skills, and so on. In that view, and as a result, this aim will help in increasing

human capital capabilities in the field of the study.

Education demonstrates its importance to economic growth as a contributor to human

development, production quality, and technology advancement (Adriente & Guiking, 2015).

Quality education might offer other important outcomes such as better parenting skills,

efficiency of consumer choices, healthier lifestyle choices and much more. This study measures all
Economic Returns to Investment in Education 29

the economic, non-economic and miscellaneous benefits that schooling has to offer. Naturally,

some of the benefits offered by schooling are unique to particular countries. These benefits include

reduction in ethnic discrimination, a reduction in gender discrimination, and a more equitable

income distribution among other things. The study provides ample evidence of these proposed

benefits and links them to the success of schooling in those particular countries. Returns to

schooling around the world, World Development Report 2013

Income Growth

There are many evidences showing that with educational investments the income will

increase and educational quality directly affects individual earnings. A study by Hanushek and

Woessmann (2010) has shown that more schooling is associated with higher individual earnings.

They conclude that policy makers often assert that if their state spends more on educating its

population, incomes will grow sufficiently to more than recover the investment.

The major rationale for higher education and its link to potential economic growth was that

individuals can get better jobs with higher pay through the advent of secondary or tertiary

schooling. For many, schooling also provides the possibility of social mobility. Logic follows that

better educated workers are more easier and faster to train, and can be counted on to perform more

complicated tasks. They also bring other qualities to the table, such as efficiency, awareness of

time, and dependability. One factor that definitely supports such a theory is that countries with the

most productive labor forces tend to have better levels of schooling, on average. As such, this

theory can definitely be proved from a macroeconomic perspective. Additionally, education also

contributes to innovation, as the workers capacity to innovate is increased. Not only is innovation
Economic Returns to Investment in Education 30

achieved through the creation of new technology, it can also be achieved by finding new ways of

using available technology. All these factors result in higher productivity per capita.

The relationship between education and income distribution is slightly more complex. In

theory, the distribution of income from employment and that of education should be closely related.

Early work on the subject has suggested that lower levels of education lead to a very inequitable

distribution of wealth, as a majority of the populace is relegated to agrarian and labor-intensive

work, while a small percentage of the populace control a majority of its wealth. Higher levels of

education result in a number of industries, institutions and jobs being created and individuals have

greater flexibility in selecting their career orientation. The society is thus divided into several

different classes and the community as a whole move towards a more urban and civilized future.

Having studied and analyzed the data from the MENA countries, the report observes that while

income distribution has improved over time, since we started measuring it in the 1950s to present-

day. However, the report also notes that other significant variables have remained unchanged.

Economic Returns to Investment in Education, 2004

In answering the question: WHAT ARE THE EARNINGS ADVANTAGES FROM EDUCATION? For the

OECD countries surveyed in the report: Education At a Glance 2016, the earnings gap between

people with secondary education and those with below secondary education is adequately high.

However, the earnings gap between people with below secondary education and those with tertiary

education is even higher, both significantly and marginally. This suggests a much higher potential

wage acquisition through the attainment of tertiary education. The report has determined that on

average, people with doctorates, masters degrees or other equivalent degrees earn almost twice as
Economic Returns to Investment in Education 31

much as people with higher secondary education. Similarly, those with a bachelor's or equivalent

degree earn 48% more and those with a short-cycle masters equivalent earn 20% on top of that

than people with only upper secondary education. While the data provides some interesting

observations, it is imperative to note that the educational structures in OECD countries vary slightly

and this can skew the data marginally. Across the OECD countries and at all levels of educational

attainment, the gender wage gap is inherent and although women proportionally have higher

educational attainment, they continue to earn less than their male counterparts in almost every

industry. The issue is the same for educational attainment as well, with tertiary-educated women

earn only 73% as much as tertiary educated men. Interestingly, the gender wage gap at tertiary

levels of education is higher than post-secondary and secondary levels of education.

As previously discussed, people with higher levels of education stand a better chance of

employment, on top of which, they have a clearer path through natural progression at their

workplace as they already possess many of the skills required to take on additional responsibilities.

These benefits, combined with the potential to increase earnings exponentially in later years make

higher education more lucrative. On the other hand, people with lower educational levels perform

labor-intensive work for the most part, which is easy to sustain in their youth, but not in later years.

Consequently, they start experiencing a constant decline in earnings in their later years. Finally,

the data represents an average score for different variables, though it is important to note that these

variables represent factors which are considered important in diverse labor markets including

demand for specific skills, supply of labor, and other microeconomic situations unique to each

market. As such, different faculties of education might take precedence in some countries over

others.
Economic Returns to Investment in Education 32

Averaging the financial returns for all the people with tertiary education across OECD

countries, the net financial returns for women are slightly lower (around two thirds) than the net

financial returns for men. This is not a curious observation as we discussed how women are paid

less for doing similar jobs. The only possible explanation for such a concurrent theme in disparate

earnings and financial returns is a gender wage gap. While that statement is true, it is also true that

higher education translates to higher financial returns. While returns are definitely higher for

tertiary education, returns from higher secondary and post-tertiary education are quite high too. For

lower levels of educational attainment, the returns seem to fizzle out eventually as labour becomes

intensive and difficult to sustain at a later age. While the report mostly focuses on individual

returns, it does mention other societal benefits having many high-income contributors to the

economy, including greater tax contributions, higher social involvement and better standards of

living.

Improved education helps families escape some of the vicious cycles of poverty in which

they are trapped Investments in human capital have to be undertaken with both equity and

efficiency for them to successfully realize their potential impact on incomes Health and

education levels are much higher in high-income countries People will spend more on human

capital when income is higher Explain the relationship between investing in education which

leads to improving the human capital, which leads to higher income and then leads to this

statement Developing country officials are drawing lessons from the many studies showing the

interrelationships among health, education, and incomes and are devising integrated strategies

A more educated students prospects of earning considerably more income through future modern-

sector employment (Todaro & Smith, 2015).


Economic Returns to Investment in Education 33

Education and Poverty Reduction

Education, according to the study is the single most important variable that drives

economic growth, reduces unemployment and poverty (Returns to schooling around the world,

World Development Report 2013).

The report Economic Returns to Investment in Education, 2004, considers the relationship

between education and poverty reduction. Research on the subject strongly points that economic

growth is the key to a successful poverty reduction strategy. Economic growth provides people

from all social classes more opportunities to find better work and it also alleviates the lower crust

of society by providing them with an equal chance to compete with those marginally more

fortunate. And in this case, education is the great leveler. Education provides a bridge for the

economically challenged by endowing them with skills, capabilities and the confidence to compete

in today's workplace and succeed. The report contains excellent models and hypotheses, which

support their claim and correlate higher education to alleviation of poverty.

A previous study by the World Development Report had declared that education is the key

to creating, adopting and spreading knowledge, but the gains in access to education have been

unevenly distributed, with the poor seldom getting their fair share. (World Bank, World

Development Report, 1998-99)

This view is well articulated in the 20002001 World Development Report, Attacking

Poverty, which states that: Growth is essential for expanding economic opportunity for poor

peoplethough this is only the beginning of the story of public action... The question is how to
Economic Returns to Investment in Education 34

achieve rapid, sustainable, pro-poor growth. A business environment conducive to private

investment and technological innovation is necessary, as is political and social stability to underpin

public and private investment. And asset and social inequalities directly affect both the pace of

growth and the distribution of its benefits. (p. 38)

Education is critical for economic growth and poverty reduction. Education systems

produce the global economys workers and expand knowledge. Schooling produces the skills that

propel individual labor productivity. A host of social and non-market benefits are also produced

by schooling, including but not limited to child well-being, health status, efficiency of consumer

choices, fertility and social capital. The individual contribution of schooling has often been

measured by labor market earnings. (Economic Returns to Investment in Education) From:

http://siteresources.worldbank.org/INTMENA/Resources/EDU_02-Chap02-Education.pdf

Over all, the previous evidence shows that educational investment is important to nations

to provide a positive impact regarding increasing financial returns, human resources development,

increasing income growth and the poverty reduction.


Economic Returns to Investment in Education 35

LITERATURE REVIEW FINDINGS SUMMARY


Table 1:Table 1Literature Review Findings Summary

1. private returns to schooling are generally positive as compared to public

schools

2. rates of return are much higher for low or middle-income economies as

compared to industrialized economies

3. the returns seem to be highest at the primary schooling level.

4. estimated returns from schooling are proportionally higher for women as

compared to men.

5. returns to schooling have declined in the past few decades, on average.


FINANCIAL RETURNS

6. Human capital has had the most impact in the economic growth of WEI

countries.

7. The link between human capital and economic growth has proven to be

strongest in countries such as Argentina, Philippines, Uruguay, and Malaysia

over the past decade

8. educational access should be equitable for it to result in the greatest amount of

good for the greatest amount of people.

9. There was a time of heavy educational investment in some of the East Asian

countries in the 1960s, which led to rapid economic growth and higher levels of

human capital.

10. private returns tend to be higher than social returns in industrialized

countries
Economic Returns to Investment in Education 36

11. returns gained from private schooling exceed returns gained from public

schooling.

12. investment in primary education continues to be the number one priority of

government.

13. investment in women's education is in general more profitable than that for

men;

14. returns are higher in private competitive sector of the economy than among

those working in the public sector

15. public financing of higher education is regressive unlike investment in primary

education,

16. educational investment affects growth on the private returns to individuals'

greater human capital.

17. in highly developed countries, education investments foster technological

innovation, thereby making capital and labor more productive, and it will be

generating income growth


ROV

18. higher educational attainment yields greater monetary benefits,


ING

IMP
HU
Economic Returns to Investment in Education 37

19. average unemployment rates from the countries surveyed for people with below

secondary education are 12.4%. In those same countries, unemployment rates

for people with tertiary education stands at 4.9%. On the surface,

20. men on average boasted higher employment rates than women. However, when

we consider countries with higher levels of education, this gap shrinks greatly

21. The sciences, technology, construction, and manufacturing have greater

employment rates on average than humanities, languages, and the arts.

22. For highly skilled labor, the expanded education opportunities have increased

this pool of workers, and since they boast skills desirable by most employers,

are more likely to find jobs.

23. people with lower educational levels are relegated to working menial or support

jobs to people more highly educated than them. Also, they stand a greater risk

of being unemployed due to shifts in the economic system.

24. education can become the great equalizer, as it can lead to people getting

similar opportunities, acquiring similar knowledge, and providing similar

avenues of growth.

25. Education can provide a bridge to close the gap between conservatism and

progressivism.

26. Countries benefit from having an abundance of well-educated high earners. Not

only do they stimulate the economy through higher spending, they also reduce

government costs as they do not depend on social welfare, public benefit

programs and make greater tax contributions.


Economic Returns to Investment in Education 38

27. strong evidence that the cognitive skills of the population rather than mere

school attainment - are powerfully related to long-run economic growth.

28. Human capital productivity can be improved through education

29. a more educated labor force would imitate frontier technology faster

30. the accumulation of human capital could increase the productivity of other

factors and thereby raise growth.

31. Education is a basic objective of development and it is an important end in

itself. It is essential for a satisfying and rewarding life and a fundamental to the

broader nation of expanded human capabilities that lie at the heart of the

meaning of development

32. it is fundamental to enhancing the quality of human life and increasing social

and economic progress

33. Aside the many direct benefits that educated persons are likely to have, they

also benefit the community through innovation.

34. education contribute directly to well-being,

35. people with higher education start working on full-time jobs later comparing

with people with less education level. However, the higher educated group start

with greater wages.

36. the main aim of investing in educational technology is to serve the goal of

increasing students' basic skills and knowledge

37. Education demonstrates its importance to economic growth as a contributor to

human development, production quality


Economic Returns to Investment in Education 39

38. Quality education might offer other important outcomes such as better

parenting skills, efficiency of consumer choices, healthier lifestyle choices and

much more.

39. These benefits include reduction in ethnic discrimination, a reduction in gender

discrimination, and a more equitable income distribution among other things.

40. more schooling is associated with higher individual earnings.

41. policy makers often assert that if their state spends more on educating its

population, incomes will grow sufficiently to more than recover the investment.

42. The major rationale for higher education and its link to potential economic

growth was that individuals can get better jobs with higher pay through the

advent of secondary or tertiary schooling.

43. countries with the most productive labor forces tend to have better levels of

schooling, on average
INCOME GROWTH

44. education also contributes to innovation, as the workers capacity to innovate is

increased

45. lower levels of education lead to a very inequitable distribution of wealth,

46. Higher levels of education result in a number of industries, institutions and jobs

being created and individuals have greater flexibility in selecting their career

orientation.

47. the earnings gap between people with secondary education and those with

below secondary education is adequately high. However, the earnings gap

between people with below secondary education and those with tertiary

education is even higher, both significantly and marginally.


Economic Returns to Investment in Education 40

48. people with doctorates, masters degrees or other equivalent degrees earn

almost twice as much as people with higher secondary education

49. those with a bachelor's or equivalent degree earn 48% more and those with a

short-cycle masters equivalent earn 20% on top of that than people with only

upper secondary education.

50. the gender wage gap is inherent and although women proportionally have

higher educational attainment, they continue to earn less than their male

counterparts in almost every industry.

51. tertiary-educated women earn only 73% as much as tertiary educated men.

52. people with higher levels of education stand a better chance of employment, on

top of which, they have a clearer path through natural progression at their

workplace as they already possess many of the skills required to take on

additional responsibilities.

53. people with lower educational levels perform labor-intensive work for the most

part.

54. the net financial returns for women are slightly lower (around two thirds) than

the net financial returns for men.

55. Improved education helps families escape some of the vicious cycles of poverty

in which they are trapped

56. People will spend more on human capital when income is higher

57. investing in education which leads to improving the human capital, which leads

to higher income and then leads to this statement


Economic Returns to Investment in Education 41

58. A more educated students prospects of earning considerably more income

through future modern-sector employment

59. Education, according to the study is the single most important variable that
POVERTY REDUCTION

drives economic growth, reduces unemployment and poverty

60. Education provides a bridge for the economically challenged by endowing them

with skills, capabilities and the confidence to compete in today's workplace and

succeed.

61. Education is critical for economic growth and poverty reduction

METHODOLOGY

Research Method

The methodology in this research will apply both qualitative and quantitative data. More

focus on qualitative by approximately 80% and a little focus on quantitative by 20% and will be

mostly used to improve the recommendations and solutions for targeted countries and education

overall.

Data Collection

The data that will be provided in this research is a combination of quantitative and

qualitative data as mentioned before. The quantitative part will be secondary data. This data will

be collected from different sources that play a significant role in finding answers to the research

questions, such as Ministry of Education, Ministry of Economy and Planning, Ministry of Finance,

Ministry of Petroleum and Mineral Resources and Ministry of Labour data. These data will be

covering at least fifteen years to achieve accurate analysis.


Economic Returns to Investment in Education 42

Data Analysis

The data analysis will be determined through regression analysis where the economic

growth variable is the dependent variable, and the independent variables are investment in

education, government spending in supporting private educational sectors, oil price and human

index. Another big part of the analysis would be determining the factors that help in education

improvements for both countries, including financial and non-financial factors.

RESEARCH ANALYSIS

Data Analysis

The data analysis will be determined through regression and multi-regression analysis as the

following layout:

Expenditure on education value is the independent variable, and the dependent variables are

GDP and population.

Mean years of schooling for both countries is the independent, and the dependent variables

are: Expending on education, GDP and population

Multi regression as in: HDI is the independent, and Expenditure on education, time and

population are the dependent variables, as shown in the following order:

X1= Expenditure on education

X2= Population

X3= Time

Where:
Economic Returns to Investment in Education 43

HDI= a0 + a1 x1 + a2 x2 + a3 x3

HDI= a0 + a1 x1 + a3 x3

HDI= a0 + a1 x1

In addition, this analysis uses the educational observations, trends and case of Canada and

Saudi Arabia to identify the factors that affect the two countries education reality and its effects

toward economic growth in both countries, which is mostly going to be done via qualitative data.

Financial Data Analysis

Description of The Data Resources

Main data source was World Development Indicators, it was the source for Government

expenditure on education, as total (% of government expenditure). Last Updated Date 2017-

06-01. GDP indicator code: NY.GDP.MKTP.CD. Also, the population and mean years of

schooling, for both countries, were contributed from the same source.

Human development index (HDI) for both countries was gained from UNDP website,

Human Development Reports. http://hdr.undp.org/en/data

Actual expenditure on education for both countries was taking by multiplying GDP (current

$US) with Education Expenditure (% of GDP)

For Canada data, there was missing data on Education Expenditure (% of GDP) for the

years: 1996, 1997, 2003, 2004 and 2006. However, after spending long time in finding the

data, and with the help of TRU librarians, it appears that these missing data dont exist.

Hence, it has been calculated by the moving average, as there are no radical changes noticed

over the years.


Economic Returns to Investment in Education 44

For KSA, the years, from 2007 to 2011 in World Development Indicators data, of Education

Expenditure (% of GDP) were missing. However, it has been provided in Saudi Fiscal Year

reports from Alarabia.net which is part of the MBC group. According the MBC website:

MBC Group (Middle East Broadcasting Center) is the largest and leading private media

company in the Middle East & North Africa region that enriches peoples lives through

information, interaction and entertainment And it has been known as a reliable news that

is directed to present the Saudi government views in the Middle East. Then, the messing

GDP years in Saudi data (2007, 2009, 1010 and 2011) have been calculated by dividing

Education Actual Expenditure by GDP current $US, then the total was multiplied into 100.

Data Found

CANADA DATA (21 years)

Figure 1:CANADA DATA (21 YEARS)


Economic Returns to Investment in Education 45

SAUDI ARABIA DATA (21 years)

Figure 2: SAUDI ARABIA DATA (21 YEARS)

Regression Results Details

The regression results are analyzed using the data analysis tool on Excel 2016. However, variables

are tested at the 95% confidence level. More details in the following:

1. Multiple R Interprets the extent to which there exists a correlation or association between

the dependent and independent variable.

2. The positive or negative value of X The positive value of X or the independent

variable indicates a positive relationship. And vice versa.

3. The p-value - The p-value was used as a determinant of significance. This value determines

the extent to which there exists a significant relationship between X & Y.


Economic Returns to Investment in Education 46

List of Regression Analysis

Canada Regressions:

Regression 1- (Y: Exp. On Education Vs Xs: GDP & Population)

Figure 3: Regression 1 - (Y:Exp. on Education Vs. Xs: GDP & Population)

As GDP increases, expenditure on education Increases as a result. There is a positive significant

relationship between GDP and educational expenditure in Canada over the 21 years examined.

Thus, the sufficiency is significant. The more GDP would be increased, the more investing on

education is provided. However, and surprisingly, the population is increasing but not as same ratio

level as GDP.
Economic Returns to Investment in Education 47

Regression 2- (Multi Regressions, Y: Mean Yrs. School. VS Xs: GDP, Population, Edu.

Exp.)

Figure 4: Regression 2 - (Multi Regressions, Y: Mean Yrs. School Vs. Xs: GDP, Population, Edu. Exp.)

As both GDP and Population Increase, the level of schooling Increases in Canada over 21 years.

Relationship is too strong as shown on (Multiple R). However, on the negative side, Expenditure

on education is not relevant, and the Coefficients of its relationship with mean years of schooling

is negative, and there is no strong relationship


Economic Returns to Investment in Education 48

Regression 3- (Multi Regressions, Y: HDI, Vs Xs: Population, Time 1-21, Edu. Exp.)

Figure 5: Regression 3- (Multi Regressions, Y: HDI, Vs. Xs: Population, Time 1-21, Edu. Exp.)

When Time increases over the years, and at the same time education expenditure is increasing too,

HDI increases over the years as a result. In another word, when HDI increases and goes up, actual

expenditure on education is going up too. however, there is a Negative relationship between

Population and HDI, thus the level of growing in both variables is not the same. Regarding the

Population: it is growing up over the years, but HDI and expenditure on education are not

increasing at the same range.

Important note: in 2010, UNDP changed the methodology of calculating the HDI, thus, in this

research we ignored the impact of that methodological change, because the previous data was

calculated by the old way, which is the majority of the data collected for this study.
Economic Returns to Investment in Education 49

Regression 4- (Multi Regressions, Y: HDI, Vs Xs: Time 1-21, & Edu. Exp.)

Figure 6: Regression 4- (Multi Regressions, Y: HDI, Vs. Xs: Time 1 - 21 & Edu. Exp.)

Here, both relationships are Positive and significant, when time and expenditure on education

increase, the HDI increases too over the years.

Regression 5- (Multi Regressions, Y: HDI, Vs X: Edu. Exp.)

Figure 7: Regression 5 - (Multi Regressions, Y: HDI, Vs. X: Edu. Exp.)

In this regression, the situation is very positive, and there is a strong relationship. As education

expenditure is increasing, HDI is increasing too in Canada.


Economic Returns to Investment in Education 50

Regression 6- (Y: Edu. Exp. Per Cap, Vs X: GDP Per Cap.)

Figure 8: Regression 6 - (Y: Edu. Exp. per Cap, Vs. X: GDP per Cap.)

Regression 7- (Y: GDP per Cap., Vs X: Edu. Exp. As % of GDP)

Figure 9: Regression 7- (Y: GDP per Cap., Vs. X: Edu. Exp. As % of GDP)
Economic Returns to Investment in Education 51

Saudi Arabia Regressions:

Regression 1- (Y: Exp. On Education Vs Xs: GDP & Population)

Figure 10: Regression 1- (Y: Exp. On Education Vs. Xs: GDP & Population)

As GDP and population increase, expenditure on education increases too. There is a significant

Positive relationship between the variables.

Regression 2- (Multi Regressions, Y: Mean Yrs. School. VS Xs: GDP, Population, Edu.

Exp.)

Figure 11: Regression 2 - (Multi Regressions, Y: Mean Yrs. School Vs. Xs: GDP, Population, Edu. Exp.)
Economic Returns to Investment in Education 52

All variables in this regression are significant.

Regression 3- (Multi Regressions, Y: HDI, Vs Xs: Population, Time 1-21, Edu. Exp.)

Figure 12: Regression 3 - (Multi Regressions, Y: HDI, Vs. Xs: Population, Time 1- 21, Edu. Exp.)

In these multi-regressions, population is significant, time is not, Education Expenditure have a

border line with strong correlation. However, while population and expenditure on education are

increasing, then HDI is increasing as a result.

Important note: in 2010, UNDP change the methodology of calculating the HDI, thus we ignore

the impact of that methodological change, because the previous data was calculated by the old way

old way, which is the majority of the data collected for this study.
Economic Returns to Investment in Education 53

Regression 4- (Multi Regressions, Y: HDI, Vs Xs: Time 1-21, & Edu. Exp.)

Figure 13:Regression 4- (Multi Regressions, Y: HDI, Vs. Xs: Time 1-21, & Edu. Exp.)

All relationships in this observation are positive and significant. With time increasing and spending

on education increasing too, then HDI is increasing too as a result.

Regression 5- (Multi Regressions, Y: HDI, Vs X: Edu. Exp.)

Figure 14: Regression 5- (Multi Regressions, Y: HDI, Vs. X: Edu. Exp.)

Here it shows a positive correlation, positive relationship between HDI and education expenditure,

it is significant and very strong relationship between the two variables.


Economic Returns to Investment in Education 54

Regression 6- (Y: Edu. Exp. Per Cap, Vs X: GDP Per Cap.)

Figure 15: Regression 6- (Y: Edu. Exp. per Cap, Vs. X: GDP per Cap.)

Regression 7- (Y: GDP per Cap., Vs X: Edu. Exp. As % of GDP)

Figure 16: Regression 7- (Y: GDP per Cap., Vs. X: Edu. Exp. As % of GDP)
Economic Returns to Investment in Education 55

Data Comparison:

Independent Variable: Expenditure on Education

Saudi Canada Highest

GDP 0.037944573 0.06 Canada

Population 1168.565409 (4,681.47) Saudi

Table 2:Independent Variable (Expenditure on Education)

Independent Variable: Mean Years of Schooling

Saudi Canada

GDP 4.46567E-13 1.54127E-12

Population 2.06972E-07 2.55086E-07

Edu. Exp. 2.4727E-11 -1.45921E-11

Table 3:Independent Variable: Mean Years of Schooling

Independent Variable: HDI

Saudi Canada

Time 0.000243865 0.009800066

Population 6.72684E-09 -2.61016E-08

Edu. Exp. 6.89174E-13 3.96704E-13

Table 4:Independent Variable: HDI


Economic Returns to Investment in Education 56

Descriptive Statistics:

GDP & Edu. Exp. (Canada)


2,000,000,000,000.00
1,800,000,000,000.00
1,600,000,000,000.00
1,400,000,000,000.00
1,200,000,000,000.00
1,000,000,000,000.00
800,000,000,000.00
600,000,000,000.00
400,000,000,000.00
200,000,000,000.00
-
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21

GDP (current US$) (X) Canada Actual Exp. On Edu. ($US) (Y)

Graph 1: GDP & Edu. Exp. (Canada)

GDP & Edu. Exp (Saudi Arabia)


800,000,000,000.00
700,000,000,000.00
600,000,000,000.00
500,000,000,000.00
400,000,000,000.00
300,000,000,000.00
200,000,000,000.00
100,000,000,000.00
-
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21

GDP (current US$) (X) Saudi Actual Exp. On Edu. ($US) (Y)

Graph 2: GDP & Edu. Exp. (Saudi Arabia)


Economic Returns to Investment in Education 57

GDP (Canada Vs. SAUDI)


3,000,000,000,000.00
2,500,000,000,000.00
2,000,000,000,000.00
1,500,000,000,000.00
1,000,000,000,000.00
500,000,000,000.00
-
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21

Graph 3: GDP ( Canada Vs. Saudi)

Edu. Exp.$US (Canada Vs. Saudi)


100,000,000,000.00

80,000,000,000.00

60,000,000,000.00

40,000,000,000.00

20,000,000,000.00

-
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21

Graph 4: Edu. Exp. $US (Canada Vs. Saudi)


Economic Returns to Investment in Education 58

Non-financial Factors Analysis

Educational Policies and Curriculum Design Canada & Saudi Arabia Comparison

For a proper comparison of the Canada and Saudi Arabia educational systems, some non-

financial factors such as the differences in educational policies and curriculum designs, schooling

age, mixed-gender schools and the socio-economic benefits contribution of international student to

economic growth in both countries will be discussed.

In Canada, education is for the most part provided publicly, funded and overseen by federal,

provincial, and local governments. Education is within provincial jurisdiction and the curriculum

is overseen by the province (Friendly, Beach, & Turiano, 2001). Education in Canada is generally

divided into primary education, followed by secondary education and post-secondary. Within the

provinces under the ministry of education, there are district school boards administering the

educational programs and school curriculum differs across provinces, this fact has lead to

competition environment between provinces and has brought diversity over Canada. However, the

same idea is missing in Saudi, where all thirteen provinces are directed and controlled by one single

system.

Regarding the schooling years, most education programs in Canada begin in kindergarten

(age five) or grade one (age six) and go to grade twelve (age 17 or 18), except in Quebec, where

students finish a year earlier. After completion of a secondary school diploma, students may go on

to post-secondary studies (Barnett, 2008). In Canada, there is no discrimination or limitation for

women to enroll in some courses in the University. Both sexes have equal access to education and

funding support from the government for those who seek student loans. However, the system is
Economic Returns to Investment in Education 59

lacking in terms of gender equality in Saudi Arabia, this is going to be discussed in further details

later.

One of the key non-factors affecting the educational output is the school start age. In Canada

educational system, emphasis has consistently been placed by the government on early education

due to its importance in ensuring a solid background to build on, promotion of quality education

and yield outcomes for sustainable economic growth. It is easy to notice that, in general, kids start

the fundamental skills of writing and reading at an early age compared to the situation in Saudi

Arabia.

Kindergarten start age is five years in most provinces in Canada, except Quebec. The reason

for this is evident through increased research in the area of early childhood development that

suggests younger children may not be as developmentally ready as their chronologically older peers

to learn in an instructional environment. Therefore, it is required that every child attains a minimum

age of five before starting kindergarten. The reason for this is to allow for maturity, development

of stamina and capacity for socio interaction, all of which are developed during the pre-school

years which are in the range of 1-4 years.

The Canadian educational system adopts a play based teaching approach for kids at this

stage, it is well-known nowadays by the term Edutainment. This is to help develop potential

benefits on peer socialization, school readiness, and numeracy and language skills. Also, a growing

body of child development researches, neuroscience, and program evaluation demonstrates that

high-quality early childhood care and education programs improve school readiness and later
Economic Returns to Investment in Education 60

outcomes for young children (Demma, 2010). This has been a fundamental building block for

Canada educational system. This helps the kids from a very early age to develop social skills and

boots their confidence, learning capacity, awareness and creativity. All of these have been seen to

positively impact the growth of the educational system and ultimately promoting economic growth

in Canada overall.

Saudi Education System, Pros and Cones and Recommendations

On the other hand, in Saudi Arabia, education has four major characteristics: emphases on

Islam, a centralized educational system, separate education for women and financial support. Islam

is the core of most of the curriculum. The centralized educational system for both women and men

is under the purview of the ministry of Education. All schools at all levels utilize the same methods

of instruction, textbooks, evaluation techniques, curricula, and educational policy is the same

across the country. However, a few high-schools have a slightly different system that is also

supported and controlled by the ministry of education.

Although women constitute 58% of all university graduates in Saudi Arabia, their

educational background still does not guarantee them a job after graduation. The Saudi education

system, unfortunately, limits women's access to labour markets and participation in the global

economy. However, recently the feminist movement in Saudi has put pressure to society and

government to make changes, and it paid off recently. The education system does limit gender

equality so in two ways. The first way is by restricting women's entry into certain fields of study.

Women are excluded from studying engineering (recently they have opened a few majors in a few

universities), journalism, aviation studies and architecture. Thus, such fields are reserved for men.
Economic Returns to Investment in Education 61

For decades, the lack of majors available for women has caused a shortage of the female

contributions on many majors. Women appear to be studying dentistry, education, medicine,

nursing, and public administration among some other professions. In some fields of study, such

as natural and social sciences, the number of female university graduates exceeds the number of

male graduates. In these areas women now represent a major and underutilized human resource,

(AlMunajjed, 1997). In conclusion, because of this system which is struggling by the slow process

of improvement and making core changes, women are not able to completely contribute to the

economic growth in Saudi Arabia. In another word, by limiting women's access to the labor market

through restrictions on certain areas of study and on access to certain jobs, education is not

preparing Saudi women for the global economy and is once again only helping to preserve the

socially accepted status quo. These have over the years negatively impact the contribution of

women to national economic growth and therefore undermined the huge amount of monies spent

on funding education.

The current educational system in Saudi Arabia which limits womens access to the labour

market and by not preparing men for the reality in the global market and thereby creating the need

for migrant workers (Baki, 2004).

Also, apart from the limitation for women education, the Saudi government education

curriculum is different from what is obtainable in Canada in many ways: The school starting age

in Saudi Arabia was recently increased from 3 to 4 years in 2014 (Francis, 2014). Children aged

35 years go to kindergarten. However, attendance of kindergartens is not a prerequisite for

enrollment of first grade of primary education and kindergartens are not part of the official
Economic Returns to Investment in Education 62

education ladder. Some private nurseries have been established with technical and financial aid

from the government. According to government data, 100,714 children (51,364 male and 49,350

female) are in pre-primary education in 2007 and this represents an enrollment rate of 10.8%, for

boys 11.1 and 10.4 percent for girls. These figures are low compared with the enrolment rate in

Canada. According to Statistics, more than half (54%) of parents with children aged 4 and under

used child care.

The impact of gender segregated schools in the Saudi Arabia educational system is also

having a negative impact on educational outcomes. In Saudi Arabia, the Shari'a (Which is a

reflection of understanding Islam) is embodied in Saudi education programs, and the goal of

education is to instill in Saudi society a particular vision of the moral and religious life This is

true and many people are not satisfied with its result and consequences over the years.

At universities level, students, for both genders, do not pay tuition for all majors available in

government universities, which is most of the preferred universities in Saudi. Moreover, there is a

monthly pay that is provided for every student by the education ministry and the government to

help students cover their needs and academic requirements. This salary is equal to about $350 CDN

every month, it helps students to at least cover the basic academic and living needs.

Besides the previous point, the students-houses provided for universities students in main

cities are also very discounted to help students save some money while studying. The average cost

for students habitats every semester is about $350 CDN. These financial advantages help students

to focus more on studying rather than working to provide a basic living cost. The pressure of
Economic Returns to Investment in Education 63

providing funds to study and for university materials is almost none. By this, most Saudi students

are able to focus more on their education and learning.

The volunteering experience is something that the Saudi Education system needs to consider.

As there is a requirement of voluntarily hours from every student in Canada to enroll into

universities, the Saudi system needs to benefit from this experiment as it helps in increasing the

social responsibility to students, and then as a result, more outcomes would be provided to the

community.

When taking about the major advantages of the Saudi education system, King Abdullah

Scholarship Program is a key in this regard. It has created more higher educated people and

empowered more women by education and varieties of majors that wasnt allowed before. The

program is still progressing, and more students are provided with better international education.

The youth generation, overall, is well-educated, from different reliable universities around the

world, this is including men and women.

On the negative side, the system in Saudi Arabia does not have a clear discrimination policy in

schools, this did not help in decreasing the bullying level. In universities, there is no appeal

process system in which students can seek justice if they face discriminations or oppression from

faculties. The ministry should implement such a system to apply justice over universities.

Talented Students are supervised, monitored by King Abdulaziz and His Companions

Foundation for Giftedness and Creativity. It is a national cultural foundation that is honored to be
Economic Returns to Investment in Education 64

presided over by the Custodian of the Two Holy Mosques who supervises it directly and

continuously. According to their official websites, the foundation vision is: For the Gifted and

Creative to become the most important contributors to the Nation and its Prosperity. And the

mission is: We contribute to building a national framework for giftedness and creativity, we

provide outstanding care to the gifted, and we promote excitement for science and knowledge.

(http://www.mawhiba.org.sa/en/AboutKacgc/Pages/Vision.aspx)

Part of the recommendation to Saudi education system, is that if the government can own and

creates more private educational sectors, and indicate its returns to the government, that would be

great and would make more financial returns. As it has been proven according the literature review

that returns on private educational sectors are greater than public sectors.

There was a statement made by the ministry of education in July, 2017. It states that fitness

classes are going to be available for women and it is expected to take place the year after. However,

adding fitness classes was an issue discussed for many years before. This small story tells us that

the decisions are been made in a very slow-cycle system. This slow movement on the education

solutions overall is going to affect the education improvement for the long term. It is understood

that due to social traditions, such a decision needs to take time to process, but again, real

improvement requires real bravery in order to make changes.

https://www.moe.gov.sa/ar/news/Pages/edu-sport.aspx

International Education: Canada is a home for thousands of international students who come to

Canada for the purpose to seek quality education. This has continuously improve the sustenance of
Economic Returns to Investment in Education 65

quality education in Canada. Existing literatures have shown that there is a positive value

associated with international students coming to study and staying in Canada. A study by Roslyn

Kunin in 2014, which looked at the economic impact of foreign students in Canada revealed that

about $11.4 billion was spent on tuition, accommodation, and discretionary spending (Associates,

2016).

The literature revealed that after accounting for the Canadian scholarships and bursaries, total

annual expenditure of international students including their visiting families and friends,

contributed almost $11.4 billion to the Canadian economy in 2014. This translates to $9.3 billion

in GDP contribution to the Canadian economy. This $9.3 billion figure includes $6.7 billion

contribution to GDP in direct value-added associated with tuition, food, and accommodation, and

$2.6 billion in indirect value-added associated with firms supplying goods and services to the

education services and other sectors (Associates, 2016)

Also, this inflow in to the Canadian economy translates to the creation of about 122,700 jobs

(equivalent to 104,100 FTE).This spending by international students represents revenue for goods

and services from overseas and amounts to about 11% of Canadas total service exports to the

world

Looking at this on a provincial level, Ontario, with the largest number of students, followed by

British Columbia and Quebec have significant economic contributions. Ontario shows the largest

contribution to GDP at $4.4 billion (47.3% of $9.3 billion), followed by BC with 23.4%, and

Quebec with 14.1%.


Economic Returns to Investment in Education 66

International students in short-term language training programs in Canada contributed an

additional $919.4 million per year in total spending to the Canadian economy. This represents

about $697.8 million contribution to GDP, and supporting 8,100 jobs (or equivalent to 5,900

FTE jobs).

Using a total impact approach (including direct, indirect, and induced impacts) to account

for the $11.4 billion international students spending, we estimate a much higher contribution

of around $12 billion to Canadas GDP, and support for around 152,700 jobs (Associates,

2016).

Saudi-Arabia as the largest Arab country boasts of about 25 public universities and 65 private

colleges, as well as many technical colleges with over 71,000 international students mainly

from Yemen, Syria, Egypt, Palestine and Jordan. Saudi-Arabia even though spends about 23%

of its annual budget on education does not in return get as much economic impact of this huge

spending on its GDP as Canada due to the less attractive education to students and people across

all continents as such Saudi Arabia does not get as much international students as much as

Canada.
Economic Returns to Investment in Education 67

RESEARCH CONCLUSION

The data analysis has shown that there is, overall, a strong and positive relationship between

the expenditure on education and the economy growth. When countries expend more on education,

the GDP would increase, HDI would go higher, and people life quality would be bettered out.

Countries which take a special care for education would be among the best countries in terms of

healthy life, strong economy and life expectancy. In this research, it has been found that, in both

countries analyzed, while spending on education increasing, Human Development Index is

increasing too as a result.

Both Saudi and Canada education is improving and changing, but the Saudi system needs

to implement the success in the Canadian system to overcome future difficulties and challenges.

These changes require fast decisions need to be considered regarding early childhood, gender

equality and curriculum improvement.


Economic Returns to Investment in Education 68

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