User:Lajos Csery

Knowledge is one of the most influential inputs a country or individual can have. As we look around the world, we can observe countries like Kuwait with high GNI per capita on one side and an unstable development and low school attendance on the other side. They have one or two valuable natural resources, like oil, but the income is mainly consumed and not invested into the future in order to have a sustainable growth. Due to the globalisation, the capital became internationally available and companies or countries invest where costs are lower, therefore economic profit might be achievable. A typical example could be when a company outsourcers the marketing department. In Europe, it was a tendency in the 1990’s to move the plants to the new capitalist countries like Poland, Czech Republic or Hungary. At the beginning of 1990’s, the labour was inexpensive and skilful. The management was provided from western countries and the projects had typically low added value. These plants were usually assembling projects and the parts were shipped to the plant from the mother country. As time went by, the management was changed for well-educated local managers, therefore the added value gradually increased and the average labour costs went up. As the costs went up, not to mention the appreciation of the local currency against the Euro or Dollar, companies started to shut down the plants and move them East, like Romania, Ukraine or India and China. This tendency raises an important question, how can a country with Upper Middle-Income (UMI - $3,036 - $9,385 Gross National Income per capita, source: World Bank, 2005) get to the next level. The labour cost is non efficient to guarantee low production costs and the plant is easily transferable to an country with more comparative variable costs. One could hear many discussions in the politics that labour cost has to be kept low to keep the capitol in the country. I think this is not the winner’s aspect. The economic performance of Ireland for example, was often called “marvel”, but was it really? If we would try to simplify what happened, they invested an enormous amount of time and effort into knowledge. The GNI per capita in Ireland in 2005 was $40,150 and the annual time spent in school was 17.8 year, which was the highest in Europe.

As we can see, there is a strong positive correlation between GNI and the time spent in school. The t-statistic is 4.08 therefore we can conclude that there is strong correlation between GNI and school attendance. Higher education increases productivity, which is required for development. It is easy to get to this conclusion, still it is difficult task to achieve it. Governments can not force people back to school but they can provide support for citizens to increase their human capital. The goal for UMI countries is to remain attractive to foreign capital and they can achieve this with high productivity, low political risk and economically competitive labour cost on the short run. There is an important relationship between the speed of the economy’s expansion and the school life expectancy. The t-statistic is -3.04 which indicates that lower education time results higher Gross Domestic Product (GDP) increase. The answer for the anomaly is that the increase is measured in percentage and a $26 GDP expansion could result a 7 percent growth for a country like Cambodia. Also, in counties with very low GDP, there is a limited demand for highly educated labour force. High bureaucracy is another issue, which has to be decreased in order to increase GNI. The government should establish an efficient economic environment and give the actors the necessary tools for success. The required time to start a business tells a lot about the country and how government approaches the economic as a whole.

T-statistic is -2.58 therefore there is a negative correlation between GNI and the required time to start business. Countries with higher wealth tend to have lower time frame. The government of UMI countries has to learn to leave as much freedom as possible, so the actors can create equilibrium demand, supply and price in the different sectors. Freedom is often misinterpreted in the UMI countries. It is very difficult to handle it and the actors have to learn how to enjoy the advantage of it. As a conclusion we can say that knowledge is an indispensable recourse for every country, and as an investment, it has high yield. The more people realise the importance of this, the better off the individual and the society. It is clear that education has high social cost, especially on the short run but without this investment, the UMI counties will not be able to become Developed, High Income country.

Lajos Csery