Diminishing Returns in Literacy Gains from Economic Growth: Global Evidence, 2007–2021

Abstract This study investigates the relationship between literacy rates and economic development, focusing on the diminishing returns of literacy gains as gross domestic product per capita increases. Using annual cross-country data from the World Bank between 2007 to 2021, a quadratic programming framework with concavity constraints is introduced to estimate literacy responses to income growth. This contribution is novel in rigorously enforcing diminishing returns without imposing restrictive functional forms, overcoming limitations of conventional parametric and regression-based approaches. Empirical results reveal a consistent concave pattern. Literacy rates rise rapidly in low-income countries, decelerate in middle-income economies, and eventually level off, or even decline in high-income nations. These findings challenge the prevailing assumption that continuous economic expansion uniformly advances literacy, demonstrating that income growth alone is insufficient to sustain educational progress beyond certain thresholds. The analysis highlights the need for targeted educational policies emphasizing quality and equity, particularly in contexts where additional income yields minimal or negative marginal improvements. More broadly, the framework provides a replicable and versatile tool for analyzing other human development indicators, offering policymakers a rigorous, data-driven basis for aligning economic growth with meaningful social outcomes.