Overcoming Skill Shortages Provides a Major Boost to Growth - ADB

Improving the quality of education, as defined by higher cognitive abilities, can reap huge dividends for economic growth in developing Asia in coming decades, says a new Asian Development Bank (ADB) report.

In a special chapter of Key Indicators for Asia and the Pacific 2015, its flagship annual statistical publication, ADB says average years of schooling in the region nearly doubled between 1970 and 2010, resulting in substantial gains in literacy and helping fuel growth. But this has not been enough to produce sufficiently skilled workers to fully meet current or future demands.

Skill shortage and skill mismatch are a serious problem in many developing countries, including those in Asia, said ADB Chief Economist Shang-Jin Wei. Addressing this problem can be an important source of growth. Per capita income in a typical developing Asian economy can more than double in a 20-year period if ognitive skills can progressively reach levels seen in more advanced economies.

The report uses a unique data set of education indicators across 67 economies globally, including 23 from developing Asia and the Pacific, to capture key features of basic educational systems. It shows that improving skillsespecially cognitive skills which capture writing, reading, numeracy, and problem-solving capabilitiescan substantially increase growth prospects for countries in the region. Across the measures studied, countries can make the most substantial gains in skill levels when test scores and school performance are routinely available to the general public. Curriculum development and early child education can also substantially increase skills.

Governments in developing Asia spent over $1.2 trillion on education in 2014, but the report says higher spending alone will not have the desired impact on skills development. Improving the efficiency of spending is key, with rigorous evaluations and evidence-based policy decisions the cornerstones of reform efforts. Among other things, the report shows that better results are likely when public spending on education is aligned with private sector investment, when teachers are incentivized and when vouchers, subsidies and conditional cash transfers are precisely targeted to needy and disadvantaged groups.

Developing Asia has reaped substantial benefits from its manufacturing boom and the rise of modern services, but changing work trends could halt further gains. The report finds that up to 28% of existing jobs in some economies could be at high risk of disappearing as a result of technological changes. New job opportunities will arise, but for Asia's workers to make the most of these, a solid base of cognitive skills and non-cognitive skillsthat require communication and working in teamsare needed to complement specific technical skills.

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