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2nd International Conference on the Economics of Education
Cognitive Skills, Institutions, andEconomic Outcomes
Eric A. HanushekStanford University
in conjunction withLudger WmannUniversity of Munich and Ifo Institute
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Outline of Talk
Evidence on cognitive skills and economic
growth Institutions and cognitive skills
Issues of causation
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Cognitive Skills and Growth by Regions
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Conclusions
Powerful effects of cognitive skills Individual earnings
Distribution of income
Economic growth
Complementarity of skills and the quality of
economic institutions
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1. Augmented neoclassical growth theoriesMankiw, Romer, and Weil (QJE 1992)
2. Theories of endogenous growth Lucas (JMonE 1988); Romer (JPE 1990); Aghion and
Howitt (1998
3. Theories of knowledge diffusionNelson and Phelps (AER 1966); Benhabib and Spiegel
(JEconGro 2005)
Education in Growth (Theory)
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Empirical Progression
Simple cross-country growth regressions Enrollment rates (Barro 1991)
Wide variety of alternatives literacy (Romer 1991)
school attainment (Barro 1990, Mankiw, Romer, Weil1992),Levine and Renelt 1992)
Cognitive skills Hanushek and Kimko 2000, . . . Hanushek and
Woessmann on-going
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Measuring knowledge, not sitting in the classroom
International agencies have conducted manyinternational 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
Cognitive Skills: International Student
Achievement Tests
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Growth of GDP/pop, 1960-2000(1) (2)
GDP per capita 1960 -0.379 -0.302
(4.24) (5.54) Years of schooling 1960 0.369 0.026
(3.23) (0.34)
Test score (mean) 1.980
(9.12)
Openness
Protection against expropriation
Constant 2.785 -4.737(7.41) (5.54)
N 50 50
R2 (adj.) 0.252 0.728
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).
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Cognitive Skills and Economic Growth
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Quantity of Schooling
Without quality control
With quality control
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Additional Details
Institutions
Details of distribution
Minimal skills Rocket scientists
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Growth of GDP/pop, 1960-2000(1) (2) (3)a (4)
GDP per capita 1960 -0.379 -0.302 -0.277 -0.351
(4.24) (5.54) (4.43) (6.01)
Years of schooling 1960 0.369 0.026 0.052 0.004
(3.23) (0.34) (0.64) (0.05)
Test score (mean) 1.980 1.548 1.265
(9.12) (4.96) (4.06)
Openness 0.508(1.39)
Protection against expropriation 0.388
(2.29)
Constant 2.785 -4.737 -3.701 -4.695(7.41) (5.54) (3.32) (5.09)
N 50 50 50 47
R2 (adj.) 0.252 0.728 0.741 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).
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Distribution and Institutions(9) (10)GDP per capita 1960 -0.287 -0.297
(5.12) (5.64)
Years of schooling 1960 0.022 -0.031
(0.28) (0.41)
Share of students above threshold of 400 2.732
(3.61)
Share of students above threshold of 600 12.880
(4.35)
Test score (mean) 0.942
(2.30)
Openness 0.732
(2.13)
Test score * openness 1.609
(2.34)
Constant 1.335 3.814
(2.97) (11.24)
N 50 47
R
2
(adj.) 0.719 0.785Dependent variable: average annual growth rate in GDP per capita, 1960-2000.t-statistics in parentheses. Source: Hanushek and Wmann (2007).
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Education Quality and
Openness
0
0.5
1
1.5
2
2.5
3
0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1
Effect of test score on growth
Openness
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).
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1. Schooling may reflect other attributes of the
economy Strong relationship even if East Asian countries
are excluded
2. Reverse causality
International test scores not systematically relatedto resources
Issues of Causation
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Expenditure-Performance
350
400
450
500
550
0 10000 20000 30000 40000 50000 60000 70000 80000
Math performance in PISA 2003
Cumulative educational expenditure per student
Mexico
Belgium
Iceland
FranceSweden
SwitzerlandDenmark
AustriaNorway
USA
ItalyPortugal
Spain
Korea
GermanyIreland
Czech Rep.
HungaryPoland
Slovak Rep.
Greece
Finland
NetherlandsCanada
Japan
Australia
R2
= 0.15
R2
= 0.01
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Simply identifying East Asian countries
Strong relationship even if East Asian countriesare excluded
Reverse causality
International test scores not systematically relatedto resources
Other efficiency or cultural aspects
Immigrants into U.S.
Issues of Causation
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What explains U.S. growth?
Favorable economic institutions
Early substitution of quantity for quality
Higher education
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Further Robustness Checks
Fertility rate
Geography (latitude; fraction of land intropics)
Alternative specification checks:
Recent tests, early tests, different grade levels,math/science separately, different growth periods
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Trends in Test Scores
Australia
Australia
Belgium
Belgium
Canada
Canada
Finland
Finland
France
FranceUK
UK
Germany
Germany
Italy
Italy
Japan
Japan
Korea
Korea
Netherlands
Netherlands
N. Zealand
N. Zealand
Norway
Norway
Sweden
Sweden
USA
USA
460
480
500
520
540
560
1975 2000
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Trends in growth rates and in test scores
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Conclusions
Powerful effects of cognitive skills Individual earnings
Distribution of income
Economic growth
Complementarity of skills and the quality of
economic institutions