Contribution of Education and Training to Innovation and Growth

Ludger WößmannUniversity of Munich and Ifo Institute

Contribution of the European Expert Network on Economics of Education (EENEE) to the

Symposium on the Future Perspectives

of European Education and Training for Growth, Jobs and Social Cohesion

Brussels, 19-20 June, 2007

• Theory1. Augmented “neoclassical” growth theories

• Education as “human capital”

2. Theories of endogenous growth • Education new ideas = innovation = technical change

3. Theories of knowledge diffusion • Education adoption of new ideas generated abroad

• Initial evidence– Early cross-country growth regressions– Measuring education by average years of schooling

• Most recent version of available data:

Education in Growth Research

Quantity of Schoolingand Economic Growth

Added-variable plot of regression of average annual growth rate of real GDP per capita in 1960-2000 on initial average years of schooling and initial level of real GDP per capita. Source:

Hanushek/Wößmann (2007).

• Measuring knowledge, not sitting in the classroom

• International agencies conducted 36 international tests of students’ performance in cognitive skills since mid-1960s

• Combine tests on a common scale, mapped to PISA (Hanushek/Wößmann 2007)

Educational Quality: International Student Achievement

Tests

Educational Quality and Economic Growth

Added-variable plot of regression of average annual growth rate of real GDP per capita in 1960-2000 on initial level of real GDP per capita, average student achievement test scores, and initial

average years of schooling. Source: Hanushek/Wößmann (2007).

Educational quality – measured by international tests of math and science – has a powerful effect on national growth rates

– Increases explanatory power of model from ¼ to ¾

– Renders effect of quantity of schooling insignificant!

– Estimated effect is extremely robust to a variety of alternative specifications, observation periods, and tests of alternative mechanisms

– True both among OECD countries and among developing countries

– True in both sub-periods, 1960-1980 and 1980-2000

– True for tests performed until 1984 growth 1980-2000

Education as Determinant of Growth of Income per Capita, 1960-

2000

• Relative role of minimal and high-level skills – Result: both a decent “education for all” and a sufficient

number of “rocket scientists” are important for growth

• Panel data evidence – Mechanism of impact of educational quality on growth:

– Primarily through affecting an economy’s rate of technical progress

– Rather than through increasing returns to a year of education or through static upward shift in production function as a whole

Education and Innovation

• Within-country analysis: – In cross-country work, other factors that affect growth, such as

efficient market organizations, may be associated with productive schools

– Concentrate on immigrants to US (Hanushek/Kimko AER 2000): • Immigrants who received their education in home countries that

have higher test scores earn more in the US • Immigrants who received their education in the US do not see any

earnings advantage linked to cognitive skills of their home country

• Variation over time: – Improvements in test scores since early 1970s are related to

increasing trends in growth rates

Additional Analyses

Improved Test Scores = Improved Growth Performance

Trend in test scores since early 1970s

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• Two aspects of any educational reform plan important:

1. Magnitude of reform accomplished? – Benchmark: 0.5 standard deviation improvement

2. How fast? – School reform policies taking 10, 20, or 30 years (operating

linearly)– Impact on economy will not be immediate: new graduates from

school will initially be a small to negligible portion of labor force • Full impact is not felt until 35 years past full completion of reform

• Simulation of impact on economy:

The Implications of Improved Educational Quality

Improved GDP with Moderately Strong Knowledge Improvement (0.5

s.d.)

0%

10%

20%

30%

40%

2005

2010

2015

2020

2025

2030

2035

2040

2045

2050

2055

2060

2065

2070

2075

2080

year

pe

rce

nt

ad

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s t

o G

DP

10-year reform 20-year reform 30-year reform typical education spending

1. Educational quality – measured by what people know – has powerful effects on economic growth. • Extremely robust relationship• Improvements over time

2. Both a decent “education for all” and a sufficient number of “rocket scientists” are important for growth.

3. Mechanism appears to operate primarily through affecting rate of technical progress.

Policies to promote long-run economic performance should concentrate on effective improvement of quality of education.

Conclusions: Education Innovation and Growth

The EENEE Website– www.education-economics.org –

•www.education-economics.org as a forum to promote and disseminate research on the Economics of Education in Europe:

www.education-economics.org

Economics of Education

EENEE

Mapping of Researchers

What’s New

Symposia

www.education-economics.org

References