 limit corruption, enforce laws, and foster an environment conducive to private sector development. The data reveal a positive association between quality-adjusted education among civil servants and various dimensions of government effectiveness—that is, when civil servants are better educated, there is less corruption, higher tax collection, better public finance management, and more support for private markets.
Higher educational attainment in public administrations is associated with less corruption in those administrations. Chart 2 shows the cross-correlation between our measure of educational attainment and an indicator of corruption based on data from the International Country Risk Guide (2012). Higher educational attainment in public administrations continues to be associated with less corruption. This finding suggests that a more educated public administration workforce can eventually lead to higher development by helping limit the misuse of public funds and shelter private companies from capture.
Moreover, we found that when civil servants are better educated, countries are able to collect more tax revenue. Revenue mobilization is one of the biggest challenges for developing economies, and higher revenue mobilization should be considered a sign of state capacity and state building for developing countries (Besley and Persson, 2009). The correlation between our measure of educational attainment and tax revenue collected as a percentage of GDP is positive and strong for a large cross section of countries. This finding suggests that better-educated civil servants are more effective at administrating taxes, ensuring compliance, and understanding and enabling private sector development.
Another dimension of government effectiveness is reflected in a state’s ability to support the development, regulation, and supervision of private markets—such as the domestic financial sector, which in turn plays an important role in fostering growth. We found a positive and a statistically and economically significant relationship between our quality-adjusted measure of education in public administrations and a composite index that captures domestic financial sector standards, including regulation, supervision, and competition (Ostry, Prati, and Spilimbergo, 2009). This suggests that a more educated public administration workforce helps raise the standards of the domestic financial sector, in turn enhancing private sector development and economic growth.
Education versus institutions
One crucial issue is whether educational attainment of civil servants is the source of good governance or whether education is the result of robust institutions, such as checks and balances supported by an independent judiciary. If it is institutions that spur educational attainment, then public policies should focus on strengthening specific institutions to ensure that talented civil servants choose to join public administrations and that a country’s educational system enhances cognitive skills.
Recent research emphasizes the role of institutions in shaping economic outcomes. For instance, Acemoglu, Johnson, and Robinson (2001) demonstrate a causal relationship between the quality of institutional arrangements—such as those that aim to limit investors’ expropriation risk—and income per capita for a large cross section of countries. Arezki and Dupuy (2013) build on this approach with a theoretical model that shows an association between better-educated civil servants in the public sector and higher welfare for society as a whole. These findings suggest that decisions by talented civil servants enhance the quality of the delivery of public goods and in turn lead to economic growth.
The model yields two important theoretical predictions, which are supported by the data.
•More public-spirited agents work in the public sector than in the private sector when institutions are strong, all else equal. The reason is that stronger institutions limit the availability of public wealth that can be stolen by corrupt civil servants, which drives corrupt employees out 