IQ in the Utility Function: Cognitive Skills, Time Preference, and Cross-­Country Differences in Savings Rates

Abstract

Social science research has shown that intelligence is positively correlated with patience, while growth theory predicts that more patient countries will save more. In a closed economy, that means high average IQ countries will become more capital-­intensive. In an open economy, high average IQ countries will hold a greater share of the world's widely-traded assets. We provide the first empirical evidence that in today's world, presumably somewhere between the closed‐economy and open‐economy benchmarks, both predictions hold true: Countries whose residents currently have the highest average IQs have higher capital output ratios and higher ratios of U.S. Treasuries to nominal GDP.