Worthwhile investments

Increasing expenditure on education and health pays off economically – with an average annual productivity return of around ten per cent. This is shown by an international study by the World Inequality Lab, in which ZEW Mannheim also participated and which has now been published in the renowned Journal of Public Economics. Global long-term data from 1800 to 2025 shows that the effect is particularly significant for public education and in poorer countries. At the same time, there is still an extremely large gap. In 2025, spending per schoolchild in sub-Saharan Africa amounts to only around three per cent of public education spending per schoolchild in Europe or North America.

“Investing in education and health is investing in growth. This is particularly true where baseline spending is low. When countries reliably increase their spending on education and health, productivity growth accelerates measurably. For public education, the returns are sometimes as high as 15 to 20 per cent,” says Li Yang, PhD, co-author of the study and researcher in the ZEW “Inequality and Public Policy” Research Unit.

Global opportunity gap in education and health

The study documents a long-term rise in public spending on education and health – from less than one per cent of GDP worldwide before 1900 to around nine per cent in 2025. However, it also shows that global investment in human capital is unevenly distributed.

Rich regions account for a disproportionate share of global spending. Poorer regions, by contrast, are home to the majority of the young population, meaning that fewer investments are distributed among more people. In South and South East Asia as well as sub-Saharan Africa, public education expenditure is only around 4 per cent of the respective purchasing power-adjusted GDP, while in Europe, North America or Oceania it accounts for between 12 and 13 per cent. There is also a striking gap in health spending: per capita amounts in poorer regions correspond in some cases to only one fiftieth to one sixtieth of the global peak value.

Outlook for the future: Prospects until 2100

In 2025, the average global hourly productivity stands at around 16 euros, ranging from approximately 4 euros in sub-Saharan Africa to over 55 euros in Europe and North America. Based on historical regression analyses, the research team estimates that one additional percentage point of GDP in age-adjusted human capital expenditure increases the annual productivity rate by an average of 0.1 percentage points. Without additional investment, however, the gaps will widen and global growth will slow down. On the other hand, if spending is harmonised globally, total (public and private) spending on education and health will gradually rise to around 35 to 40 per cent of GDP by 2100 and global hourly productivity will increase to around 100 to 120 euros.

More information and contact

Press Release – ZEW – Leibniz Centre for European Economic Research (ZEW)