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Education and Economic Growth

Eric A. Hanushek, Ludger Woessmann
Published Date: 
Oxford Research Encyclopedia of Economics and Finance
Oxford: Oxford University Press

Economic growth determines the future well-being of society, but finding ways to influence it has eluded many nations. Empirical analysis of differences in growth rates reaches a simple conclusion: long run growth in GDP is largely determined by the skills of a nation’s population. Moreover, the relevant skills can be readily gauged by standardized tests of cognitive abilities. Over the period 1960-2000, three-quarters of the variation in growth of GDP per capita across countries can be explained by international measures of math and science skills. The relationship between aggregate cognitive skills, called the knowledge capital of a nation, and the long run growth rate is extraordinarily strong.

There are natural questions about whether the knowledge capital-growth relationship is causal. While it is impossible to provide conclusive proof of causality, the existing evidence makes a strong prima facie case that changing the skills of the population will lead to higher growth rates.

If future GDP is estimated based on the historical growth relationship, the results indicate that modest efforts to bring all students to minimal levels will produce huge economic gains. Improvements in the quality of schools has strong long term benefits.

The best way to improve the quality of schools is unclear from existing research. On the other hand, a number of different developed and developing countries have shown that improvement is possible.