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The total return to higher education: Is there underinvestment for economic growth and development?

Walter W. McMahon

The Quarterly Review of Economics and Finance, 2018, vol. 70, issue C, 90-111

Abstract: The total return to higher education is the rate of return based on earnings plus non-monetary private and social benefits beyond earnings that captures higher education’s contribution to development. A theory of endogenous development is a new scholarly contribution where firm and household production with education externalities and the endogeneity of new ideas leads to an optimal rate of development. This rate is higher than in an economy without these externalities. Since measures of private non-market and social benefit externalities are positive, externalities contribute to higher per capita development. The total return is estimated to be considerably higher than the opportunity cost of funds and the return on physical capital, the first major evidence of serious underinvestment in higher education in the US for optimal development. Policy-relevant treatment effects and policy options with implications for optimal development and for improving the worsening condition of the dissatisfied middle class are considered.

Keywords: Endogenous development; Human capital; Growth; Education for development; Social rates of return; Education externalities; Non-monetary higher education benefits (search for similar items in EconPapers)
JEL-codes: I23 I25 I26 I28 H52 O15 (search for similar items in EconPapers)
Date: 2018
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