The impact of education on productivity and externalities of economic development and social welfare: a systematic literature review

Purpose The factors that determine economic development, and their interrelationships and contextualization, have diachronically concerned policymakers across governments and organizations. Among these, the level of education, inequalities and other external factors strongly influence economic development and naturally lie at the epicenter of evolving scientific research. This study identifies and congregates the key articles related to education to develop a comprehensive understanding of how the internalization of externalities can boost economic development. It also prescribes the aims and means of policy-making intervention toward the reduction of educational inequalities and the permeation of externalities of education into the global economy. Design/methodology/approach This article will undertake a systematic review of the literature using two distinct databases, namely EBSCOhost and SCOPUS, within the realm of education. The objective is to conduct descriptive and thematic analyses of articles about global educational benefits. The focus is on understanding how education contributes to economic development, either through direct means such as enhancing skills leading to increased labor productivity or by generating positive externalities. The review aims to explore the correlation between education levels and GDP growth, emphasizing the imperative of internalizing these externalities. Additionally, the article intends to propose recommendations for future research in this area. Findings Education is a key driver of economic growth for both developed and developing countries, benefiting nations, firms and individuals alike. A well-educated population enhances innovation, productivity and social stability, leading to sustained economic development. At the firm level, investment in education fosters a skilled workforce essential for competitiveness. Individuals with higher education enjoy better job prospects and earning potential, contributing to overall economic health. In today's volatile social and economic climate, it is crucial for governments and companies to collaborate, internalizing the positive externalities of education to advance sustainability and economic resilience. Originality/value Many studies have been conducted to highlight the important role of education in different countries across the world. The purpose of this study is to find common features and establish a common ground that can be internationally applied both in developed and developing economies, to rethink and update their policies and to adjust them appropriately so that they can synchronize and keep up with the significant global changes in economic and social conditions.