Education and Economic Growth
in Middle East and North Africa

by Willem van Eeghen

Since the 1960s, Arab countries have invested heavily in education, transforming it from a privilege into a right. As a result, most MENA countries are now approaching universal primary school enrollment; the major exceptions are Morocco, Saudi Arabia and Yemen, where access to primary schools remains problematic, especially for girls. The region’s governments’ substantial commitment to education is reflected in their levels of spending on education, which now average 4.4 percent of GDP and 14.9 percent of total spending. These levels are somewhat above spending levels in comparable developing countries, and are on a par with spending in high-performing Asian economies. And in some important respects, this investment has paid off. The social benefits of education have been enormous: literacy, life expectancy, infant mortality and many more social indicators have improved dramatically over the last 30 years. Moreover, many people earn considerably more than their parents as a result of education.

Yet in terms of overall economic growth and increases in per-capita income, the payoffs from education in the region have been very disappointing, especially since the mid-eighties. Unemployment has been on the rise for over a decade now. In Algeria, Jordan, the West Bank and Gaza, and Yemen, the unemployment rate is estimated at around 20 percent of the workforce, which is very high by international standards. Real wages have also declined, and this decline has been reflected in a drop on the expected rates of return to education: The wage premium for an additional year of schooling is much lower for younger than for older workers. As a result, education has become a less attractive investment option for parents and young people, which is troubling at a time when MENA’s changing economies require more and better skills. Furthermore, maintaining current levels of per-student spending in real terms will be almost impossible due to increased enrollment levels combined with stagnant GDP.

Economic growth and education are intertwined. Greater access to education in the past 30 years has certainly contributed to higher rates of economic growth. But by much is hard to ascertain. The extent of the contribution of education to economic growth depends not only on building skills, but also on their application. There is evidence that state-led development models and rigid labor markets do not favor rapid economic growth, even when the state offers broad access to schooling and high education quality (as, for example, in Eastern European countries under socialist rule). In MENA, state-led economic systems have prevented education from paying off in terms of high rates of economic growth. Greater access to education increased the supply of graduates, who were initially absorbed by a public sector expanding in the aftermath of decolonization. But over time, as graduates continued to flood the job market, it was not the state’s demands for skilled workers but the pressing supply of graduates that caused the state to absorb them. Jobs were created to avoid unemployment despite the threat — and now the reality — of a large and under-productive civil service. These distortions in labor markets in turn affected educational systems, which continued to teach primarily the skills needed for public-sector employment.

The need for educational reform in the region has grown urgent. These reforms will need to focus primarily on the quality of education. If education systems do not adjust, but continue to be designed to produce only civil servants, they will conflict increasingly with economic reality. Education systems must be able to generate a skilled labor force compatible with the requirements for productivity in the 21st century — flexible, trainable workers who have problem-solving abilities and higher cognitive skills. As a necessary first step in these reforms, the countries of the region will need to assess carefully the quality of education and the type of skills being taught.

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