Education as absorptive capacity and its role for economic growth

Abstract

[Abstract]: Might a country’s economic growth behave in a different manner depending on the evolution of its absorptive capacity? In this research, education is considered as a channel for economic growth since it is a key element for a country’s absorptive capacity. Then, we hypothesize the existence of a threshold for absorptive capacity, so that once it is exceeded, economic growth shows certain (and different) characteristics. Addressing this question requires moving from the traditional linear framework to a nonlinear one and, in this sense, we resort to Smooth Transition specifications. The empirical results point to the existence of nonlinearities in the relationship between absorptive capacity and economic growth. According to the behavior of the country’s absorptive capacity, economic growth displays different dynamics; this asymmetric evolution is clearly appreciated in the two dimensions of absorptive capacity taken into account (i.e., secondary and tertiary), although it is more pronounced in case of tertiary education. Our evidence provides important insights for higher education such as the fact that both secondary and tertiary education matter for countries’ economic growth and that nonlinearities of this relationship should be taken on board.