Abstract
This paper studies the effect of globalization on public expenditures allocated to different stages of education. First, we derive theoretically that globalization’s influence on education expenditures depends on the type of government. For benevolent governments, the model suggests that expenditures for higher education will increase and expenditures for basic education will decline with deepening economic integration. For Leviathan governments, on the other hand, the effects of globalization on public education spending cannot be unambiguously predicted. In the second part of the paper, we empirically analyze globalization’s influence on primary, secondary, and tertiary education expenditures with panel data covering 104 countries over the 1992–2006 period. The results indicate that globalization has led in both industrialized and developing countries to more spending for secondary and tertiary and to less spending for primary education.
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Notes
Note that the underlying driving force behind globalization are technological advances in transportation, communication, and the processing of information that are only weakly influenced by policy-makers (James 2002). Cohen (1996) refers to political-driven versus technology-driven globalization as the “liberal” and “realist” models. In addition, he mentions two other perspectives emphasizing the role of the domestic political process and the importance of political culture and belief systems.
In a previous version of our paper (Baskaran and Hessami 2010), we used a slightly different set of control variables, which resulted in a panel with 121 countries. The smaller number of countries in this paper is due to the use of gross enrollment rates instead of the population shares of the age groups that are relevant for a particular type of education (primary, secondary, or tertiary) as the control for the “theoretical demand” for that type of education, and the inclusion of the number of internet users per 100 persons as a control for technological change. Despite these differences, the results and conclusions are similar.
We are grateful to an anonymous referee for pointing this out.
Wälde (2000) explains the negative relationship between the share of primary education expenditures and income inequality by deriving that a higher share of secondary and tertiary expenditures provides incentives for the development of technologies. These technologies in turn lead to a replacement of unskilled by skilled labor that gives rise to a higher extent of income inequality.
Note that Birdsall (1996) challenges the prevalent view that public resources for education in developing countries should be reallocated from higher to lower levels of education. Her main argument is that the available measures for social rates of returns to education do not capture all relevant dimensions.
Education is generally regarded as a means for social development, democratic empowerment and the advancement of well-being and economic development of societies. The term “commodification” of education refers to the fact that education is increasingly understood as an economic factor, while students are looked upon primarily as consumers of education serving as human capital for the labor market.
Andersson and Konrad (2003a) further extend this paper and analyze the welfare implications of the availability of private insurance in a world with costless mobility of the highly-educated and risky investments in education.
On the other hand, Poutvaara (2000) shows that tax competition may also encourage investment in education as mobility insures individuals against region-specific shocks to the returns to education.
Assuming that the production factors are supplied endogenously would lead to an alternative tax base effect. We ignore this effect in order to keep the model tractable.
This result would change, of course, if the government maximized aggregate utility and not aggregate income. However, utility is unobservable in reality, and most governments claim to be interested in maximizing GDP. Therefore, this result probably describes real-world policy choices in well-run countries (i.e. countries whose governments are close to being benevolent) arguably well.
While the model would in no case predict that expenditures for lower education increase if returns for low-skilled labor decline, this might be possible in reality if high-skilled individuals benefit sufficiently from lower education; see the discussion in Sect. 3.1.
The Edstats database provides data on primary, secondary and tertiary education expenditures as a share of total education expenditures. We construct the data for expenditures on the three educational stages as a share of GDP by multiplying expenditures on the three educational stages as a share of total education expenditures by total education expenditures as a share of GDP. The data for total education expenditures as a share of GDP is from the Edstats database as well.
We thank an anonymous referee for suggesting this explanation.
That is, when explaining primary education expenditures, we control for gross primary enrollment. When explaining secondary education expenditures, we control for gross primary and gross secondary enrollment. And when explaining tertiary education expenditures, we control for gross primary, gross secondary, and gross tertiary enrollment. As noted by an anonymous referee, it is important to control for gross enrollment in prior stages of education since prior enrollment rates affect how fast the government can increase expenditures for later stages. For example, the government will find it easier to increase spending for tertiary education if gross primary and gross secondary enrollment rates are already high.
The ideology variable is derived from the DPI dataset. Whereas this dataset distinguishes between right, center, left, and other governments, we use, for compactness, a 0–1 classification. We code observations with governments that are explicitly identified as left-wing as 1 and all other observations as 0.
The index is 1 when citizens have the highest and 7 when they have the lowest amount of political rights.
Since fixed effects are included in (13), each of the countries in the sample has at least two non-missing observations during the time frame of the analysis.
Any classification of countries as industrialized or developing is of course arbitrary. We classify only countries that were members of the OECD at some point during the sample period as industrialized. Therefore, the term developing as used in this paper should not be understood as being synonymous with, for example, the Least Developed Countries (LDC). It should rather be understood as encompassing all countries except the most wealthy.
To see why, note that the complete specification of a model with country fixed effects and interactions of a continuous control variable with a dummy variable is: y it =α i +β 1 d i +β 2 x it +β 3 d i x it +ϵ it , with d i ∈{0,1} (we omit other control variables for brevity). Thus, β 2 is the marginal effect of x when d i =0 whereas β 2+β 3 is the marginal effect when d i =1. This expression is equivalent to y it =α i +β 1 d i +β 2(d i x it +(1−d i )x it )+β 3 d i x it +ϵ it , which can be rewritten as y it =α i +β 1 d i +β 2(1−d i )x it +(β 2+β 3)d i x it +ϵ it , or y it =z i +γc i x it +δd i x it +ϵ it , with z i =α i +β 1 d i , c i =(1−d i ),γ=β 2,δ=(β 2+β 3). This last expression has the same structure as (13). Since it is equivalent to the complete specification, the same is true for (13).
The specification of these models is largely identical to that described in (13). The only difference is that for each spending category, all three enrollment shares are simultaneously included since relative spending is analyzed. Full results are available upon request.
Note that this result is in line with the existing evidence for globalization’s aggravating influence on income inequality (Bergh and Nilsson 2010). In a similar vein, Hessami (2011) provides evidence that globalization has increased the well-being of high-income earners more than that of low-income earners.
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Acknowledgements
The authors thank the editor-in-chief of this journal Dhammika Dharmapala, two anonymous referees, Heinrich W. Ursprung, Guenther G. Schulze, and participants of the 2010 Royal Economic Society Meeting in Guildford, the 2010 IIPF Meeting in Uppsala, the 2010 Public Choice Society Meeting in Monterey, the 2009 CESifo Political Economy Workshop in Dresden, and of seminars at the University of Basle and the University of Gothenburg for helpful comments and suggestions.
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Baskaran, T., Hessami, Z. Public education spending in a globalized world:. Int Tax Public Finance 19, 677–707 (2012). https://doi.org/10.1007/s10797-011-9202-z
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DOI: https://doi.org/10.1007/s10797-011-9202-z