How much do Educational Outcomes Matter in OECD Countries?

EDUCATIONAL OUTCOMES IN OECD COUNTRIES

c) Phase 3 (2051-2070): During this phase, the first 20 labor-market cohorts - which
only partially profited from the education reform - are replaced by cohorts that profited
from the fully enacted education reform:

Δ^t = growth coefficient * ΔPISA *------i--(∆^t-4⁰ - Δ^-4¹ )+ Δ^t-1 (5)

working life

d) Phase 4 (after 2070): Finally, the whole workforce has gone through the reformed
education system. The annual growth rate is now increased by the constant long-run
growth effect Δ:

Δ = growth coefficient * ΔPISA

5.1.2. Development of GDP with and without reform

a) Without reform, the economy grows at the constant growth rate of potential GDP:

GDP_n^t_{o reform} = GDP_n^t_o^-1_reform *(1+ potential growth)           (7)

b) With reform, the annual growth rate is additionally increased by the growth effect
Δt:

GDP_r^t_eform = GDP_r^t_e^-_fo¹_rm * (1 + potential growth + Δ^t)          (8)

In the neoclassical specification, an additional term ensures that the growth rate is
negatively affected by the (log) level of GDP reached in the previous period. As a
consequence, the annual growth rate without and with reform will converge to the same
rate of potential growth in the long run.

5.1.3. Total effect of the reform

The total value of any reform is given by the sum of the discounted values of the
annual differences between the GDP with reform and the GDP without reform:

Total value of the reform =

t =2090                                                                                  (9)

∑ (GDP_r^t_eform - GDP_n^t_{o reform})*(1+ discount rate)^-(t-2010)

t =2010

In the baseline scenario, the time horizon over which future returns will be considered is
the lifetime of a child that is born at the beginning of the reform, which equals the year
2090.

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