2nd International Conference on the Economics of Education

Cognitive Skills, Institutions, and Economic Outcomes

Eric A. Hanushek
Stanford University
in conjunction with

Ludger Wmann

University of Munich and Ifo Institute

Outline of Talk
Evidence on cognitive skills and economic growth Institutions and cognitive skills Issues of causation

Cognitive Skills and Growth by Regions

Conclusions

Powerful effects of cognitive skills

Individual earnings Distribution of income Economic growth

Complementarity of skills and the quality of economic institutions

Education in Growth (Theory)

1.

Augmented neoclassical growth theories

Mankiw, Romer, and Weil (QJE 1992)

2.

Theories of endogenous growth

Lucas (JMonE 1988); Romer (JPE 1990); Aghion and Howitt (1998

3.

Theories of knowledge diffusion

Nelson and Phelps (AER 1966); Benhabib and Spiegel (JEconGro 2005)

Empirical Progression
Simple cross-country growth regressions
Enrollment rates (Barro 1991)

Wide variety of alternatives

literacy (Romer 1991) school attainment (Barro 1990, Mankiw, Romer, Weil 1992),Levine and Renelt 1992)

Cognitive skills
Hanushek and Kimko 2000, . . . Hanushek and Woessmann on-going

Cognitive Skills: International Student Achievement Tests

Measuring knowledge, not sitting in the classroom International agencies have conducted many international tests of students performance in cognitive skills since mid-1960s
12 testing occasions 36 separate test observations (age levels, subjects)

Require rescaling to obtain combined measure

Adjust mean and variance of separate

Growth of GDP/pop, 1960-2000

GDP per capita 1960 Years of schooling 1960 Test score (mean) Openness Protection against expropriation Constant N R2 (adj.) 2.785 (7.41) 50 0.252 -4.737 (5.54) 50 0.728 (1) -0.379 (4.24) 0.369 (3.23) (2) -0.302 (5.54) 0.026 (0.34) 1.980 (9.12)

Dependent variable: average annual growth rate in GDP per capita, 1960-2000. t-statistics in parentheses. a Regression includes five regional dummies. Source: Hanushek and Wmann (2007).

Cognitive Skills and Economic Growth

Quantity of Schooling

With quality control

Without quality control

Additional Details
Institutions Details of distribution
Minimal skills Rocket scientists

Growth of GDP/pop, 1960-2000

GDP per capita 1960 Years of schooling 1960 Test score (mean) Openness Protection against expropriation Constant N R2 (adj.) 2.785 (7.41) 50 0.252 -4.737 (5.54) 50 0.728 -3.701 (3.32) 50 0.741 (1) -0.379 (4.24) 0.369 (3.23) (2) -0.302 (5.54) 0.026 (0.34) 1.980 (9.12) (3)a -0.277 (4.43) 0.052 (0.64) 1.548 (4.96) (4) -0.351 (6.01) 0.004 (0.05) 1.265 (4.06) 0.508 (1.39) 0.388 (2.29) -4.695 (5.09) 47 0.784

Dependent variable: average annual growth rate in GDP per capita, 1960-2000. t-statistics in parentheses. a Regression includes five regional dummies. Source: Hanushek and Wmann (2007).

Distribution and Institutions

GDP per capita 1960 Years of schooling 1960 Share of students above threshold of 400 Share of students above threshold of 600 Test score (mean) Openness Test score * openness Constant N R2 (adj.) 1.335 (2.97) 50 0.719 (9) -0.287 (5.12) 0.022 (0.28) 2.732 (3.61) 12.880 (4.35) (10) -0.297 (5.64) -0.031 (0.41)

0.942 (2.30) 0.732 (2.13) 1.609 (2.34) 3.814 (11.24) 47 0.785

Dependent variable: average annual growth rate in GDP per capita, 1960-2000. t-statistics in parentheses. Source: Hanushek and Wmann (2007).

Effect of test score on growth 3

Education Quality and Openness

2.5

1.5

0.5 Openness 0 0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1
Estimated effect of test scores on average annual rate of growth of real GDP per capita in 1960-2000, depending on degree of openness to international trade of a country. Source: Hanushek and Wmann (2007).

Issues of Causation
Schooling may reflect other attributes of the economy
1.

Strong relationship even if East Asian countries are excluded

2.

Reverse causality
International test scores not systematically related to resources

Expenditure-Performance
Math performance in PISA 2003 550
Korea
2

Finland Japan Netherlands Belgium Canada Switzerland Iceland Denmark Australia Sweden France Austria Germany Norway Spain USA Portugal Greece Italy

Czech Rep. Ireland Hungary

R = 0.01 500
Slovak Rep. Poland
2

R = 0.15 450

400
Mexico

350 0 10000 20000 30000 40000 50000 60000 70000 80000 Cumulative educational expenditure per student

Issues of Causation
Simply identifying East Asian countries
Strong relationship even if East Asian countries are excluded

Reverse causality
International test scores not systematically related to resources

Other efficiency or cultural aspects

Immigrants into U.S.

What explains U.S. growth?

Favorable economic institutions Early substitution of quantity for quality Higher education

Further Robustness Checks

Fertility rate Geography (latitude; fraction of land in tropics) Alternative specification checks:
Recent tests, early tests, different grade levels, math/science separately, different growth periods

Trends in Test Scores

560 Japan Korea Japan Korea 540 Finland Netherlands N. Zealand Canada Australia UK

520

N. Zealand Norway Australia Netherlands UK Finland Sweden France Belgium Norway USA Germany USA

500

France Belgium Canada Sweden Germany

480

Italy

Italy 460 1975 2000

Trends in growth rates and in test scores

Conclusions

Powerful effects of cognitive skills

Individual earnings Distribution of income Economic growth

Complementarity of skills and the quality of economic institutions