How much do Educational Outcomes Matter in OECD Countries?

CESifo Working Paper No. 3238

How much do Educational Outcomes Matter in
OECD Countries?

Abstract

Existing growth research provides little explanation for the very large differences in long-run
growth performance across OECD countries. We show that cognitive skills can account for
growth differences within the OECD, whereas a range of economic institutions and
quantitative measures of tertiary education cannot. Under the growth model estimates and
plausible projection parameters, school improvements falling within currently observed
performance levels yield very large gains. The present value of OECD aggregate gains
through 2090 could be as much as $275 trillion, or 13.8 percent of the discounted value of
future GDP. Extensive sensitivity analyses indicate that, while differences between model
frameworks and alternative parameter choices make a difference, the economic impact of
improved educational outcomes remains enormous. Interestingly, the quantitative difference
between an endogenous and neoclassical model framework - with improved skills affecting
the long-run growth rate versus just the steady-state income level - matters less than academic
discussions suggest. We close by discussing evidence on which education policy reforms may
be able to bring about the simulated improvements in educational outcomes.

JEL-Code: I20, O40.

Keywords: education, growth, OECD, cognitive skills, projection.

Ludger Woessmann

Ifo Institute for Economic Research
at the University of Munich
Poschingerstrasse 5
Germany - 81679 Munich
[email protected]

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