Drivers of economic growth: the role of environmental quality and human capital

The importance of economic growth has been emphasized by the United Nations Sustainable Development Goals (SDG). SDGs 4 and 11 suggest that education quality and a sustainable environment can improve economic growth, which has been the priority of governments worldwide. This thesis explores how environmental performance and education quality affect economic growth. To address this objective, this thesis consists of three essays, which identify the role of environmental quality and human capital in driving economic growth.
In the first paper, this thesis incorporated the environmental performance index (EPI) into the neoclassical growth model to examine the impact of environmental performance on economic growth for the Economic Community of West African States (ECOWAS). Using the two-step generalized method of moments (GMM) model, the empirical investigation finds a positive relationship between environmental performance and economic growth. In other words, environmental performance is observed to accelerate economic growth in West Africa (WA). Specifically, it is found to be significant in the non-oil producing West African countries but diminishes growth in oil producing WA countries. Based on the findings, we recommend policies that encourage improved environmental performance in non-oil-producing WA economies.
In the second essay, we interpolate the Programme for International Student Assessment (PISA) data on education outcomes using factor analysis and the Chow Lin (1971) technique to create an annual series for 37 Organisation for Economic Co-operation and Development (OECD) countries from 2000 to 2018. The original observations are measured every 3 years, and an annual series is not available for a panel or time series analysis. The second chapter then extends the PISA data, transforming it from tri-annual data to annual data. The original tri-annual observations for the countries considered during the sample period studied were 741. We extended it to 1,999 observations. The reading scores were extended from 247 observations to 667 observations, math scores from 249 observations to 673 observations, and science scores from 245 observations to 659 observations. The critical extension of this data set will benefit researchers who wish to explore issues in education, economic growth, income inequality, and human capital development. The data set is available on request from the authors.
In the third paper, we examine the role of education quality on economic growth in 37 OECD countries, using our newly constructed PISA panel data on education quality with annual observations from 2000 to 2018. By introducing annual panel data to the study of the impact of the quality of education on economic growth, we find that education quality contributes to economic growth by 2.8% annually. We found that the magnitude of the effect of education quality on economic growth is greater than in previous studies that employed cross-sectional PISA data. Based on these findings, it is suggested that education policies focus on quality rather than quantity of education to promote growth.
The thesis concludes by suggesting that increasing environmental performance and education quality help to improve economic growth. This thesis contributes to the body of knowledge by developing a unique dataset for quality of education (PISA), which can be useful for government, policymakers and future researchers. By introducing annual PISA data, we find that the significance of the effect of education quality on economic growth is 69% larger than that obtained for the cross-sectional PISA data in existing literature, which finds that education quality increases growth by 1.66% on average. This thesis further recommends that the government should focus more on the quality of education than its quantity. Further, EPI appears to be largely significant in non-oil?producing WA. Foreign investors, who prioritise sustainability in their business practices, may find non-oil-producing countries with strong environmental policies and outcomes more alluring.