An Analysis of Education Externalities With Applications to Development in the Deep South

A simplified, medium‐term dynamic model of endogenous growth is used to analyze education externalities. Returns include not only direct effects but also indirect effects from education on growth and development. Indirect effects are externalities because they arise as the result of the education of others and prior generations. The existing growth literature often discounts these, although they are shown to be larger than short‐term effects. Simulations for the U.S. Deep South indicate larger medium‐term net education impacts on growth, infant mortality, longevity, and democratization, so policies do matter. These are reasons why micro rate of return estimates are larger than education effects in growth equations. ( JEL I21, O40, O10, H23)