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.
The large growth effects of educational performance imply that low educational performance is very costly to society. Based on the relationship between educational performance and economic growth, we can perform projections of the future growth paths of the economy with given and improved educational performance. The thus calculated economic costs of low educational performance in terms of foregone future growth are stunning: For example, the projections for the United States suggest that in the long run (over the expected lifetime of a child born today), an increase in educational performance by 25 PISA points would imply 62 trillion dollar worth of additional GDP. This is equivalent to an increase in discounted future GDP over the period of 7.3%. The potential economic gains are even larger in developing countries.
Short contributions:
Measurement Counts: International Student Tests and Economic Growth (with E.A. Hanushek). international-education.blog, 1.10.2019
Get an Education! Bulletin – The world's oldest banking magazine (4): 4-8, 2013 (Formez-vous!; Istruitevi!; Bildet euch!)
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
It Pays to Improve School Quality (with Eric A. Hanushek and Jens Ruhose). Education Next 16 (3): 52-60, 2016
Poor Student Learning Explains the Latin American Growth Puzzle (with E.A. Hanushek). VOX, 14.8.2009
Education and Economic Growth: It’s Not Just Going to School but Learning Something While There That Matters (with E.A. Hanushek, D.T. Jamison and E.A. Jamison). Education Next 8 (2): 62-70, 2008
Here you can learn more about my research on this topic.
We elaborate on our results in our book:
The Knowledge Capital of Nations: Education and the Economics of Growth (with E.A. Hanushek). Cambridge, MA: MIT Press, 2015 [video]
My most important academic papers on the topic are:
Knowledge Capital, Growth, and the East Asian Miracle (with E.A. Hanushek). Science 351 (6271): 344-345, 2016
Knowledge Capital and Aggregate Income Differences: Development Accounting for US States (with E.A. Hanushek and J. Ruhose). American Economic Journal: Macroeconomics 9 (4): 184-224, 2017
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 Role of Cognitive Skills in Economic Development (with E.A. Hanushek). Journal of Economic Literature 46 (3): 607-668, 2008
Our book on how the low achievement level of US schools endangers prosperity:
Endangering Prosperity: A Global View of the American School (with E.A. Hanushek and P.E. Peterson). Washington, DC: Brookings Institution Press, 2013 [video]
With a foreword by Lawrence H. Summers, former US Secretary of the Treasury and President of Harvard University
My presentation on the "Knowledge Capital of Nations" at the Czech Academy of Sciences in Prague:
My keynote on the "Knowledge Capital of Nations" at the Competence Day 2015 of the Vienna University of Economics and Business:
