How much do Educational Outcomes Matter in OECD Countries?

EDUCATIONAL OUTCOMES IN OECD COUNTRIES

projections, we calculate the total value of the reform by aggregating the discounted
values of the annual differences between the GDP with reform and the GDP without
reform.

Our initial depiction is based on the endogenous-growth framework where higher test
scores yield a permanent increase in the long-run growth rate. We subsequently consider
a neoclassical framework where the additional convergence term makes the annual
growth rate a negative function of the (log) level of GDP reached in the previous period.
This alternative implies that the additional growth due to higher test scores is only
transitory, leading to a new higher income steady-state path but one where the economy
grows in the long run at the same rate as it would have without the reform.

5.1.1. Increase in the annual growth rate in the different phases

For expositional convenience, the description of the projections follows the basic
Scenario I where each OECD country begins an educational reform program in 2010 that
takes 20 years to be fully implemented and where subsequent students reach the new
achievement level. The economic value of the reforms is then traced across an 80-year
period (which represents the expected lifetime of somebody born in 2010). The basic
set-up is easily modified to consider alternative scenarios.

a) Phase 1 (2010-2030): In the baseline simulations, the education reform program is
assumed to take 20 years to complete, and the path of increased achievement during this
phase is taken as linear. The additional growth in GDP per capita due to the reform in
year t is given by:

Δ^t = growth coefficient * ΔPISA *-----------* -—^θɪθ + Δ^-1   (3)

working life 20

where the growth coefficient stems from the regression estimations presented in the
previous sections and ΔPISA is the increase in the average PISA test score due to the
respective reform. The working life term indicates that each cohort of new, higher
achieving students is only a fraction of the total labor force.

b) Phase 2 (2031-2050): The education reform is now fully enacted, and achievement
of all subsequent students remains at the new level. But for the length of a work life
from the start of reform, which in the baseline simulations is assumed to last 40 years,
there are still workers with initial levels of skills that are being replaced in retirement by
higher achieving workers. During this phase, the additional growth in GDP per capita in
year t due to the reform is given by:

Δ^t = growth coefficient * ΔPISA *------i--+ Δ^t-1        (4)

working life

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