Contribution of Education and Training
to Innovation and Growth
Ludger Wößmann
University 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
Education in Growth Research
• Theory
1. 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:
Quantity of Schooling
and 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).
Educational Quality:
International Student Achievement Tests
• 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
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).
Education as Determinant of
Growth of Income per Capita, 1960-2000
 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 and Innovation
• 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
Additional Analyses
• 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
Trend in growth rates, 1975-2000
Improved Test Scores =
Improved Growth Performance
Trend in test scores since early 1970s
The Implications
of Improved Educational Quality
• 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:
Improved GDP with Moderately Strong
Knowledge Improvement (0.5 s.d.)
30%
20%
10%
80
20
75
20
70
20
65
20
60
20
55
20
50
20
45
20
40
20
35
20
30
20
25
20
20
20
15
20
10
20
05
0%
20
percent additions to GDP
40%
year
10-year reform
20-year reform
30-year reform
typical education spending
Conclusions:
Education  Innovation and Growth
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.
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:
Economics of
Education
References
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