How Much Do Educational Outcomes Matter in OECD Countries?

an article by Eric A. Hanushek and Ludger Woessman (Hoover Institution, Stanford University, NBER and CESifo; University of Munich, Ifo Institute for Economic Research, CESifo and IZA) published in Economic Policy Number 67 (July 2011)

Summary

Between 1960 and 2000, three OECD countries averaged more than four percent annual growth in per-capita GDP, while two averaged less than 1.5 percent. Despite extensive investigations of the determinants of long-run economic growth, little is known about why some developed countries have grown so much faster than others. A number of studies over the past decade have shown that human capital as measured by cognitive skills explains a significant portion of the difference in growth rates between developed and developing countries. We show that cognitive skills also can explain differences in growth within just the OECD. We then provide three innovations on past analyses.

First, we demonstrate that a wide range of measures of economic institutions have no significant relationship with long-run OECD growth once cognitive skills are accounted for.

Second, even though tertiary education is often thought to be the big advantage of developed countries, there is little evidence that it explains differential growth. In fact, the alternative of measuring cognitive skills suggests that the top end of the human capital distribution is more important in developing countries than in OECD countries.

Third, we use the estimated growth models to simulate the economic impact of improved educational outcomes.

 The results suggest that the OECD as a whole could gain (in present value terms) $90-275 trillion from implementation of reform programs that bring human capital in the OECD to higher levels (but ones currently observed within the OECD). We close by discussing evidence on which education policy reforms may be able to bring about the required improvements in educational outcomes.

Full text (PDF 65pp) contains a number of data tables and formulae supporting the hypothesis.

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