Improving non-urban schools could add $56 billion to GDP

Australia could add more than $56 billion to its annual Gross Domestic Product (GDP) by improving educational outcomes for students in regional, rural and remote areas of the country.

The Economic Impact of Improving Regional, Rural & Remote Education in Australia – Closing the Human Capital Gap Report shows there is a $56 billion difference in earnings potential between rural, remote and regional students and their urban counterparts.

To wit, $56 billion is larger than the contribution of the entire Australian tourism industry and four times the size of the Australian beef industry.

The report is the first major analysis from the Gonski Institute for Education, which was officially launched during an event on Monday. Based in the UNSW Faculty of Arts and Social Sciences, the Institute brings together scholars, policy-makers and practitioners to conduct research that will help improve academic and well-being outcomes particularly for disadvantaged students and those who live in rural and remote Australia.

Adrian Piccoli, Director of the Gonski Institute for Education, said it is widely acknowledged that closing the attainment gap is an educational and social imperative and the report further bolsters the argument by quantifying enormous financial gains. 

“The typical policy approach to improving economic growth, increasing employment opportunities and improving the standard of living in regional Australia is characterised by major investments from governments into regional infrastructure like roads, rail and hospitals,” said Piccoli. “These investments are welcome, but the huge economic effect of investment in education is often underestimated and undervalued.”

The report, led by UNSW Economics Professor Richard Holden, analysed 2017 NAPLAN test scores to measure the educational attainment gap between nonurban and urban students. Using comparable data from the United States measuring differences in educational attainment and the earnings gap between black and white students, researchers scaled Australian results proportionally to determine that the earnings gap between rural, remote and regional Australia compared with urban Australia due to differences in human capital formation is 18.3%.

Professor Holden then mapped the result into economic outcomes by observing how much of economic output is earnt by labour, as opposed to other factors of production. In Australia, this is currently 57.0%, according to ABS figures. Applying the share of the population living in rural and regional areas in Australia (31.5%) equals an economic gap attributable to differences in human capital of 3.3% of GDP. This implies that closing one-third of the gap between rural-remote-regional and urban human capital attainment would increase Australian GDP by 1.1% or $18.5 billion. Fully closing the gap represents a $55.5 billion GDP improvement.

Professor Holden said the report’s findings are conservative as there is also a multiplier effect throughout the economy from increased productivity and wages.

“This report highlights the potential benefits to closing the urban and non-urban education gap, while also pointing to the types of interventions that need to be taken to do so,” Professor Holden said. “These are only the direct effects, on wages, of closing the human capital gap. There are important spill-overs in addition to this, such as improvements in physical and mental health and enrichment of communities.”

The report is available at https://education.arts.unsw.edu.au/about-us/gonski-institute-for-education/research-and-policy-reports/