IQ in the Ramsey Model: A Naive Calibration

38 Pages Posted: 15 Jul 2005

Date Written: July 2005

Abstract

I show that in a conventional Ramsey model, between one-fourth and one-half of income differences across countries can be explained by a single factor: The steady-state effect of large, persistent differences in national average IQ on worker productivity. These differences in cognitive ability - which are well-supported in the psychology literature - are likely to be malleable through better nutrition, better education, and better health care in the world's poorest countries. A simple calibration exercise in the spirit of Bils and Klenow (AER, 2000) and Castro (Rev. Ec. Dyn., 2005) is conducted. According to the model, a move from the bottom decile of the global IQ distribution to the top decile will cause steady-state living standards to rise by between 75 and 350 percent. I provide evidence that little of IQ-productivity relationship is likely to be due to reverse causality.

Keywords: Economic Growth, Intelligence, Human Capital, Cognitive Ability

JEL Classification: O41, J24

Suggested Citation

Jones, Garett, IQ in the Ramsey Model: A Naive Calibration (July 2005). Available at SSRN: https://ssrn.com/abstract=755584 or http://dx.doi.org/10.2139/ssrn.755584

Garett Jones (Contact Author)

George Mason University ( email )

Department of Economics
Center for Study of Public Choice
Fairfax, VA 22033
United States

HOME PAGE: http://mason.gmu.edu/~gjonesb

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