The role of education in economic transition and political transformation in post-Communist countries

This study analyzes the role of investment in education in the economic transition and political transformation in the 22 post-communist countries of the former Soviet Union and East-Central Europe. In the first section an empirical analysis of the determinant of economic growth and investment in physical capital is performed. This analysis detects positive impact of investment in secondary education on economic growth after applying appropriate lags to the variables and controlling for the initial level of per capita income. Foreign direct investment is also found to be one of the determinants of economic recovery in the post-communist countries. The analysis of determinants of investment in physical capital and foreign direct investment reveals that political stability measured by the Freedom House index for democratization and investment in education positively impact foreign direct investment. In the second section the analysis of the determinants of democratization, human rights and political stability in these countries is conducted. This analysis finds strong direct impact of the level of income and hence economic growth, and indirect impact of investment in education through economic growth on democratization, human rights and political stability. The third section focuses on the relations between education and poverty. It finds that investment in education has also direct and positive effect on poverty reduction. In particular, this study finds that secondary education has a positive impact on poverty reduction. There is also indirect effect of investment in education which stems from its impact on economic growth and economic growth on poverty alleviation. In addition the strong impact of economic growth and democratization on poverty reduction is also detected. Thus the author concludes that despite high rates of investment in education in these countries in the past and its positive effects on recent economic recovery and political liberalization, these countries need to maintain the high rates of this investment, and to upgrade and reform their educational system in order to successfully complete transition to a market economy and to democracy while striving to eliminate poverty.