Schooling and Productivity Growth: Evidence from a Dual Growth Accounting Application to U.S. States

Abstract

This paper exploits the dual growth accounting framework to determine the effect of schooling on total-factor productivity (TFP) growth for U.S. states over 1980 to 2010. Our growth accounting exercise shows that the current literature, which approximates TFP growth by only real wage growth, severely understates the variation in the former across states. While our econometric estimates reveal significant TFP growth effects associated with college education, they are considerably lower in magnitude when compared to the earlier studies. Productivity growth effects associated with high school education remain insignificant. Our empirical findings are further validated by the use of instrumental variable estimation to address endogeneity of the schooling variables and are also robust to the inclusion of a rich set of control variables, as well as to the tests to draw robust inferences in the presence of weak instruments.

Keywords: Dual Growth Accounting, Total-Factor Productivity Growth, Schooling, Externalities

JEL Classification: O47, R11, J24