The Knowledge Capital of Nations

Why are people in East Asia roughly nine times as prosperous as their grandparents, whereas people in Latin America only two-and-a-half times? Using international student achievement data, my research with Eric Hanushek shows that the skills of the population – which in the aggregate we refer to as the “knowledge capital” of nations – are a decisive factor for the long-run growth of countries. Statistically, differences in the skills of the population can fully account for both the East Asian growth miracle and the slow growth in Latin America. Growth differences among developed countries can also be largely attributed to differences in knowledge capital.

A simple model that considers only educational achievement and the initial level of per-capita GDP can account for three quarters of international differences in long-run economic growth; without considering educational achievement, this is only one quarter. The size of the effect is substantial: A country that increases its educational achievement by 25 PISA points – as achieved, for example, by Germany and Poland over the past decade – its annual growth would increase by roughly half a percentage point in the long run. Over a fifty-year period, this would be equivalent to an increase in income per capita by more than one quarter. In contrast to educational achievement, differences in years of education do not contribute to an explanation of growth differences. Economic policy that aims to secure long-run prosperity should thus focus on the quality of schools.

Here you can find a short non-technical overview on this topic.

Research papers:

Knowledge Capital, Growth, and the East Asian Miracle (with E.A. Hanushek). Science 351 (6271): 344-345, 2016

• • A short paper focused on the East Asian miracle

Do Better Schools Lead to More Growth? Cognitive Skills, Economic Outcomes, and Causation (with E.A. Hanushek). Journal of Economic Growth 17 (4): 267-321, 2012

• • The key results of the analysis of causal effects of educational achievement

Schooling, Educational Achievement, and the Latin American Growth Puzzle (with E.A. Hanushek). Journal of Development Economics 99 (2): 497-512, 2012

• • An extension with regional Latin American student achievement tests

Sample Selectivity and the Validity of International Student Achievement Tests in Economic Research (with E.A. Hanushek). Economics Letters 110 (2): 79-82, 2011

• • Shows that selectivity of tested student populations does not bias the results of growth analyses

The Role of Cognitive Skills in Economic Development (with E.A. Hanushek). Journal of Economic Literature 46 (3): 607-668, 2008

• • A survey paper on the early literature - based on the following report for the World Bank:

Education Quality and Economic Growth (with E.A. Hanushek). Washington, DC: World Bank, 2007

Two early contributions in this area:

Second Thoughts on Development Accounting (with E. Gundlach and D. Rudman). Applied Economics 34 (11): 1359-1369, 2002

Specifying Human Capital. Journal of Economic Surveys 17 (3): 239-270, 2003 (Reprinted in: D.A.R. George, L. Oxley, K.I. Carlaw (eds.), Surveys in Economic Growth: Theory and Empirics, Oxford: Blackwell Publishing, 13-44, 2004; and in: C. Belfield (ed.), Modern Classics in the Economics of Education, Cheltenham: Edward Elgar, 2006)

Non-technical contributions:

The Political Economy of ILSAs in Education: The Role of Knowledge Capital in Economic Growth (with E.A. Hanushek). In: T. Nilsen, A. Stancel-Piątak, J.-E. Gustafsson (eds.), International Handbook of Comparative Large-Scale Studies in Education, Cham: Springer, 27-53, 2022

Education and Economic Growth (with E.A. Hanushek). In: Oxford Research Encyclopedia of Economics and Finance. Oxford: Oxford University Press, 2021

Education, Knowledge Capital, and Economic Growth (with E.A. Hanushek). In: S. Bradley, C. Green (eds.), The Economics of Education: A Comprehensive Overview, Second Edition, London: Academic Press/Elsevier, 171-182, 2020

Measurement Counts: International Student Tests and Economic Growth (with E.A. Hanushek). international-education.blog, 1.10.2019

Poor Student Learning Explains the Latin American Growth Puzzle (with E.A. Hanushek). VOX, 14.8.2009

Material available only in German

Newspaper articles:

Wissen und Wohlstand der Nationen. Frankfurter Allgemeine Zeitung, 18.5.2015, p. 16

Bildung schafft Wohlstand. Neue Zürcher Zeitung, 21.10.2015, p. 29 (also published in: Ökonomenstimme, 11.11.2015)

An early newspaper article is:

Spitze und Breite. Wirtschaftswoche, No. 19, 5.5.2008, p. 48

Non-technical contribution:

Das Wissenskapital der Nationen: Gute Bildung als Wachstumsmotor. Wirtschaftsdienst 97 (special issue): 38-42, 2017

Bildungserträge (with F. Kugler). In: O. Köller, M. Hasselhorn, F.W. Hesse, K. Maaz, J. Schrader, H. Solga, C.K. Spieß, K. Zimmer (eds.), Das Bildungswesen in Deutschland: Bestand und Potenziale, Bad Heilbrunn: Julius Klinkhardt / UTB, 231-261, 2019