A SYSTEM DYNAMIC MODEL AND POLICY ANALYSIS FOR
NATIONAL EDUCATION AND ECONOMY DEVELOPMENT
Xu Qingrui , Zhu Keqin , Li Junjei
Department of Industrial Engineering & Management
Zhejiang University , Hangzhou , China
Abstract. Most of the developing countries are faced the problem how
to allocate limited resource to education to promote economy growth.
In this paper, the System Dynamics methodology is employed to solve
the problem. The interactions between education, economy and Science~
Technology (S&T), and the inherent mechanism of education and economy
are studied. Based on these studies, a system dynamics model for
national education and economy development is established. According
to. the actual social-economic situation of China, several different
resource allocation policies for education are tested on the model.
Finally, some useful policy suggestions about resource allocation for
education are given, such as the proper ratio of education expenditure
to national income and the proper ratios of resources allocated to
defferent levels of education.
INTRODUCION
For developing country, one of the most difficult problems in the
development of economy is how to allocate its limited resource
properly to make its economy grows continuously. It has been confirmed
that education made great contribution to the growth of economy by the
experience of the developed countries. So, education can be seen as a
type of investment to the growth of economy. Further, the experience
of the developed countries also shows that the contributions to the
growth of economy in the different levels of education are different.
Therefore, the interrelation and mechanism between education and
economy, and the proper scale and structure of education based on the
demand of economy in different development stage of economy should be
studied. Then the proper resource allocation policies in education can
be determined, which will be advantageous to the long-term goals of
national economy development under the limitation of the national
finance.
A System Dynamics model is established for solving the problems of the
coordinate development between education and economy in China.
Different from other research work, the main point of this research is
that Science & Technology (S&T) has strong influence on the change of
industrial structure and the change of industrial structure reflects
the fundamental development of economy. Such change produces the
demand for labors and professionals. Therefore, the change of
educational scale and structure should meet the demand from the
development of economy and S&T. Meantime, the development of education
can not go beyond the limitation of resource in certain stage of
development. Based on this main point, the model is developed into
five sectors which are education, R&D, industry, finance and
population. In China, the problem of the coordinate development
between education and economy is a hot topic of research. Although a
lot of studies have been done, most of them are based on the
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qualitative analysis or the simple statiscal methods. Few studies have
been done from the point that the inherent feature of the coordinate
development between education and economy is the coordination between
the structure of education and industries in the different development
stage of economy.
In this paper, the relationship between the structure of
education and industry, and the mechanism and relationship between
levels of education are studied in depth. Meantime, the relationship
between education and S&T, and the relationship between industry and
S&T are also discussed. By the simulation based on the model, some new
results are obtained. First, the proper ratio which education
investment holds in the national income during the different phase of
economy development is obtained. Second, the proper ratio of resource
allocation among the different educational levels during the
development of economy and the change of industrial structure is also
obtained.
ANALYSIS OF THE SYSTEM MECHANISM AND THE MODEL STRUCTURE
The interrelations between five sectors are shown clearly in figure
1. For example, education sector supplys the educated labors and
Professionals
techmu tony
Fnnawa tren
Achievements
Figure 1. The general structure of the model
professionals for industry and R&D sector considering the demand from
industry and R&D sector respectively. Meantime, education sector get
the budget from finance sector and distributes new demands to finance
sector based on the needs of coordinate development between education,
economy and S8T. In the following, the three main sectors which are
education, R&D and industry will be discussed in detail.
For the purpose of this research, education sector is divided into
three parts, which are elementry education, secondary education and
high education. The causal loop diagram of education sector is shown
in figure 2. Here, some rational assumptions are made: first, the
fixed assets investment for education is ignored, because it holds a
little proportion in total resource allocated to education. Second,
the students in higher level of education directly come from the
graduated students in lower level of education, ignoring the little
Proportion of students who come from labors.
78
edueutton ==
Expenditure
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Stuaents
ins
} 2
m =
na nat ba
tabors—=———or ne
Etveated Ynve neg.
tai 7
wri
Hesceves Ret Fed
Degree vt
Potential
Denard for
ee
+ Gee SF
Figure 2. The causal loop diagram of education sector
Based on these assumptions and the inherent mechanism of education
procedure, the negative feedback loops L1-L5 are established, which
control the output of education in every level and the allocation of
resource between three levels. Considering the interrelations between
education, R&D and industry, the feedback loops L6-L9 are constructed.
L9 reflects the coordinate development between R&D and education. In
general, as the development of R&D, the demand for R&D professionals
is changing, consequently the education sector trys to meet the new
demand. As the same principle, the feedback loops L6-L8 represent the
coordination between the development of education and industries. With
the development of economy and the change of industrial structure, the
demand for educated labors is also changed and the gap of educated
labors will be overcome by the supply of education.
R&D Sector
In this model, the activity of S&T is represented by R&D, which is the
core of S&T. For focusing on the main problem to be salved, the
inherent structure of R&D is ignored. This assumption is reasonable
because the main contribution of R&D achievements to economy comes
from the results of technology innovation.
When the input of R&D is certain, the output of R&D is determined by
the inherent mechanism of R&D procedure. As shown in figure 3, the
output of R&D is represented by R&D achievement reserves which is
79
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. S ania
aan Zs onnaiencenne
1. AShtevenent ate ef Rad
nap” Reservge —anehtevenente
a
‘babs 11 ty Potential applies
‘probabi tt e ap
tee Por nan Rehievenents
ehyevements Through TH
Ww r -
itis Cori po"
| "aise
Level of
Teaustry
indenie KD “" vvepertion
a 2 Annual Ratio of
Personnel Retired ie inte
enna: Rep
7 to" Abroad
Perevane!
w
‘Technelosy
Level of
Eaugpeent
Added RSD
Persoane!
Figure 3. The causal loop diagram of R&D sector
composed of two parts, one coming from the output of self-R&D
achievements, another coming from the imported R&D achievements. The
positive feedback loops LI1-L3 control the output of self-R&D
achievements, while the negative feedback loop L4 affects the imported
R&D achievements.
As discussed previously, R&D is not a lonely activity, which is
influenced by the input of expenditure, personnel and equipments, and
by the demand coming from the development of economy. The feedback
loops LS and L6 reflect the coordinate development between R&D and
education, while the feedback loops L7 and L8 control the coordination
between the development of R&D and economy.
Industry Sector
For the purpose of this research work, industries is divided into five
parts which are agriculture, consumption goods industry, intermediate
goods industry, final investment goods industry and infrastructure &
construction industry. The development of these industries is in the
dynamic equilibrium between total demand and total supply. Every
activity in industries is motivated by the goal to overcome the
discrepancy between demand and supply. Figure 4 shows the causal loop
diagram of industry sector. There are four main negative feedback
loops Li-L4 in industry sector, which reflect the four ways to
overcome the discrepancy betwween demand and supply. Ll means
increasing the total supply by the investment of fixed assets, while
L2 means adding the total supply by the input of labors. These two
methods are all based on the increasing amount of input of simple
production factors. Contrast to this, L3 and L4 represent another type
of method to overcome the discrepancy by raising the productivity. L3
is through technology innovation ta increase the technology level of
production and finally increase the productivity, while L4 is through
education to increase the labor quality and then to lessen the
a Teenage
tmowtin we apn ta Intermediate
fy
etatel Dinerepaney os
Supply
—bemana
<
Technology,
Lnvet
TO ~\s
Tiled afeeix — Mepreesation—seTatal Annual
wo
Uaber.
Saat ty
Labors Fed
of Labors Ee
Taven tment
Discrepancy
saat Labo
Quattty
Tabors’
Appitea na
‘Reni evencnts
Through TT
Labor
Saat tuy
Figure 4. The causal loop diagram of industry sector (part)
disadvantageous effect to productivity resulting from the discrepancy
of labor quality.
POLICY ANALYSIS
As discussed above, the scale of education expenditure and the ratios
of resource allocated between three levels are mainly decided by the
social-economic situation at that time. Through model simulation, a
tendency of the ratio of education expenditure to national income and
the ratio of education expenditure of each level to total education
expenditure is obtained. The ratio of education expenditure to
national income changes as S-shaped, while the ratio of elementary
education expenditure to total education expenditure decreases from
the first position to second position and the ratio of secondary
education expenditure to total education expenditure grows into the
main parts of total education expenditure. Compared with the actual
behaviors shown by the statistics of most developed countries, the
behaviors of the model are similar. Thus the model can be used to
test real world policies based on the viewpoint of system dynamics
that system's structure decides system's behavior.
Using this model to analysis the development of education and economy
in China under the basic policy during the period from 1985 to 2035,
the following results are given:
. The ratio of education expenditure to national income grows
rapidly during the first twenty years, then slows down, and
finally tend to a certain value. Because resource allocated to
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education in basic policy based on the demand for education from
economy and. S&T, and the limitation of national finance, so the
rapid growth of the ratio means that the growth rate of resources
allocated to education should be greater than the growth rate of
national income. Meantime, the simulation result that the ratio
grows rapidly at first is consistent with the current social-
economic situation of China. In China, the economy can be identified
as the primary industrialization, in which agriculture takes the
great role in economy and industry develops . rapidly. Through
technology innovation, a great deal of new technology are applied in
industries and the technology level of all industries is increased.
So there is an increasing demand for educated labors, which is the
main reason for the increasing of the ratio of education
expenditure. Meantime, the development of S&T and the increasing
demand for professionals are also responsible for the increasing of
the ratio. During the last thirty years, the slowing growth rate of
the ratio means that as the technology level of the nation arrives
at a certain level, the demand for educated labors and professionals
can be meeted by the coincident growth of education and economy. The
simulation results also shows that agriculture takes the secondary
role in national economy and industry becomes the main parts’ in
national economy, which marks that the economy of China will enter
into the indusrialized stage. Unless there is a new technology
revolution, the ratio of education expenditure will keep stable.
. The ratio of elementary education expenditure to total education
and the ratio of secondary education expenditure are changing at the
contrast direction and finally exchange their positions. During the
first twenty years, the changing rates of the ratios of the
secondary and elementary education expenditure are rapidly, and then
the change rates of the two ratios are slowing down, finally they
tend to certain values. This result shows that for being consistent
with the increasing technology level, the quality of labors should
be improved, which results in the need for raising the. educational
level. of labors, especially the demand for labors educated in
secondary education is enlarged. The result also conform to the
behavior that the scale of the industries with higher technology
level such as consumption goods industry is increased, which absorb
more highly educated labors.
» The ratio of high education expenditure to total education
expenditure is decreasing during the first twenty years, and then
keeps in, a certain level, finally it increases gradually. This
simulation result is contrast to the general point of view which
thinks that the ratio of high education will grow gradually as the
development of economy. However, the result is consistent with the
fact that the elementary and secondary education are faced with the
serious shortage of expenditure in China, while the ratio of high
education expenditure is comparatively .too high compared with the
similar stage of economy development in the developed countries. So
the result means that under current social-economic situation in
China, the ratio of high education expenditure should be compressed
a little.
In aword, the ratio of education expenditure to national income and
the ratios of resources allocated to three levels of education should
be changed during the different development stage of economy. In
general, the growth rate of education expenditure should be higher
than the growth rate of national income, at least they are the same.
For comparison, the high education priority policy and the fixed ratio
policy are tested based on the model. Some useful results are obtained
as following:
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. Under the high education priority policy, which means that the
ratio of high education expenditure grows rapidly and arrives at the
value that developed countries own, ‘the growth rate of economy is
slowed down compared with that under the basic policy. This is due
to that the higher ratio of high education expenditure makes the
elementary and secondary education expenditure become more shortage,
which can not meet the growing demand for educated labors from the
development of economy and the change of industrial structure.
Finally, the productivity of some industries is decreased due to the
unqualified labors. So, it is disadvantage to the development of
economy if a developing country allocates too much resource to high
education blindly compared with the current educational levels of
developed countries, no regarding to its own social economic
situation.
. Under the fixed ratio policy, which means that the ratio of
education expenditure to national income and the ratios of resource
allocated to three levels of education are unchanged no considering
to the different development stage of economy, the behavior is
worse than that under the high education priority policy. This is
because both the educated labors and the professionals are becoming
more and more shortage.
From the analysis above, following policy suggestions are available
for government in policy making about the resource allocation in
education:
The growth rate of education expenditure should be greater than,
at least the same as that of national income. . However, based on the
current situation in China, the growth rate of education expenditure
should be greater than that of national income. From the simulation
results, when the ratio of education budget rises to about 6.3%, the
development of education and economy can be coincident.
. The ratio of high education expenditure should not be raised too
fast in a developing country. Even in certain condition, the ratio
of high education expenditure should be lowed to guarantee the
coordinate development between the elementary/secondary education
and the economy. From the simulation results, the government should
drop down the ratio of high education expenditure from 20% to about
15%. However, this ratio can not be lowed further for the long-term
development of economy.
CONCLUSION
From the discussion above, the problem about the resource allocation
in education is solved successfully with the System Dynamics
methodology. Especially, the study about the problem is based on the
deep discussion of the interrelations between education and economy,
and the inherent mechanism of education and economy. So, the obtained
new conclusions are believable, such as the proper ratio of education
expenditure to national income and the proper ratios of. resource
allocated to three levels of education in the different development
stage of economy.
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Tomkins, R., "Structural Features of a System Dynamics Model of the UK
Economy", in System Dynamics and Analysis of Change, B.E.Paulre(ed.),
North-Holland Publishing Company, 1981
Xu Qingrui, et al.,"Science-Technology, Education and Economy System
Dynamic Model", Proceedings of International Conference on System
Science and Engineering (ICSSE' 88), 1988
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