Do Better Schools Lead to More Growth? Cognitive Skills, Economic Outcomes, and Causation

64 Pages Posted: 1 Dec 2009

See all articles by Eric A. Hanushek

Eric A. Hanushek

Stanford University - Hoover Institution on War, Revolution and Peace; National Bureau of Economic Research (NBER); CESifo (Center for Economic Studies and Ifo Institute)

Ludger Woessmann

Ifo Institute for Economic Research; Institute for the Study of Labor (IZA); CESifo (Center for Economic Studies and Ifo Institute for Economic Research); University of Munich - Ifo Institute for Economic Research

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Abstract

We investigate whether a causal interpretation of the robust association between cognitive skills and economic growth is appropriate and whether cross-country evidence supports a case for the economic benefits of effective school policy. We develop a new common metric that allows tracking student achievement across countries, over time, and along the within-country distribution. Extensive sensitivity analyses of cross-country growth regressions generate remarkably stable results across specifications, time periods, and country samples. In addressing causality, we find, first, significant growth effects of cognitive skills when instrumented by institutional features of school systems. Second, home-country cognitive-skill levels strongly affect the earnings of immigrants on the U.S. labor market in a difference-in-differences model that compares home-educated to U.S.-educated immigrants from the same country of origin. Third, countries that improved their cognitive skills over time experienced relative increases in their growth paths. From a policy perspective, the shares of basic literates and high performers have independent significant effects on growth, and the estimates suggest that the high-performer effect is larger in poorer countries.

Keywords: human capital, economic growth, cognitive skills

JEL Classification: H4, I2, J3, J61, O1, O4

Suggested Citation

Hanushek, Eric A. and Woessmann, Ludger, Do Better Schools Lead to More Growth? Cognitive Skills, Economic Outcomes, and Causation. IZA Discussion Paper No. 4575, Available at SSRN: https://ssrn.com/abstract=1515122 or http://dx.doi.org/10.2139/ssrn.1515122

Eric A. Hanushek (Contact Author)

Stanford University - Hoover Institution on War, Revolution and Peace ( email )

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National Bureau of Economic Research (NBER)

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Ludger Woessmann

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HOME PAGE: http://www.cesifo.de/link/woessmann_l.htm

Institute for the Study of Labor (IZA)

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CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

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Munich, DE-81679
Germany

University of Munich - Ifo Institute for Economic Research

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Germany

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