The research investigates the relationship between investments in higher education and scientific research, on the one hand, and the economic performance of developed countries on the other. The study’s longitudinal economic and higher education inputs were collected from various comparative cross-country databases (e.g., WDI, OECD Statistics Portal, UNESCO, etc.). The first part of the study is mostly descriptive and focuses on the development tracks of Israel and OECD countries. It investigates the variation in higher education and economic indicators over four time periods. Special interest is given to the examination of Israel’s relative position among the 30 OECD member countries. The second part of the study is empirical. It employs two models (two-stage model and multivariate regression model), in order to test the main hypothesis of the research stating that a positive and significant linkage exists between higher education investment and economic growth.
Findings from the descriptive section of the research show a significant decline in the relative ranking of Israel in comparison to other OECD nations. Higher education expenditure per student relative to the GDP decreased more than 60% during the last fifteen years. Israel is ranked last among OECD countries in the percentage of growth in science students relative to its population. The data show a continuous decline in the relative position of Israel in the number of science students, from third place in 1960 to seventeenth place in 1995. Small countries such as Ireland and Finland show an impressive and steady growth in the relative rankings over these years. The status of Israel in the engineering field is a little better. Israel keeps its relative position within OECD countries in the number of engineering students over all four time periods.
Empirical results from the second section suggest that an indirect relationship exists between higher education investment and economic growth. Evidence shows that higher education inputs translate into human capital outputs (trained workforce in the computing, science and engineering fields), and these turn back into inputs which explain the economic performance of OECD countries. Israel is successful in translating its high investment rates in higher education into a high-quality labor force, but fails to leverage its human capital inputs into strong economic performance. The two main activities of universities – teaching and research, were found to be connected to enhancing the GDP per capita of OECD countries. The research shows that a 1$ investment in R&D expenditure per student, ceteris paribus, will result in an increase of 2.8$ in GDP per capita.
