EDUCATIONAL OUTCOMES IN OECD COUNTRIES
1.6-1.8 times as well off than 40 years before. These stark differences are directly
visible when comparing the three fastest-growing and the three slowest-growing
countries highlighted (together with the US) in Figure 1, which plots GDP per capita in
1960 and 2000: Korea surpassed several other OECD countries, including Mexico;
Japan and Ireland went from 40-45 percent to 131-140 percent of New Zealand’s
income; and Ireland caught up to Switzerland from an initial level of 35 percent of its
GDP per capita.
This paper focuses on these long-run growth differences among OECD countries. Our
results show that educational outcomes play a leading role in their understanding, and we
estimate how much improvements in educational outcomes could matter for developed
economies. The paper builds on existing growth analyses that focus attention on
cognitive skills, as opposed to the more commonly measured school attainment or years
of school completed (see Hanushek and Woessmann (2008) for a review). But while
much of the existing analysis is focused on developing countries and their difference
from developed countries, here we focus on whether cognitive skills also matter in
understanding growth differences among rich countries.
The basis of assessment of the role of human capital is a series of cross-country growth
regressions that characterize variations in growth rates between 1960 and 2000. Our
analysis of growth differences relies largely on the 24 OECD countries with consistent
data on cognitive skills and economic growth across the period, although we also
provide some relevant comparisons with the expanded sample of 50 countries that
incorporates non-OECD countries.1 Section 2 provides the basic estimates of growth
models along with investigation of the sensitivity of the results to sample, model
specification, and the like. The clear result is that richer measures of human capital
based on international math and science tests dramatically increase the ability of the
statistical models to explain growth differences across OECD countries. Moreover, the
estimated relationship is generally impervious to altered specifications of the model.
Perhaps the leading candidate for being a more fundamental explanation of growth is
the quality of a country’s economic institutions such as having secure property rights or
an open economy. This idea - most fully developed by Daron Acemoglu and his co-
authors - does not, however, have clear application in OECD countries where there is
limited variation in these broad institutions (see Acemoglu, Johnson, and Robinson
(2001, 2005)). Beyond these, considerable attention has been given to variations across
the OECD in regulations of labor and product markets, bureaucratic burdens, and the
like (see Nicoletti and Scarpetta (2003); Nicoletti and Pryor (2006)). The empirical
application has, however, mostly addressed short-term growth effects at the industry
level within countries.
Section 3 provides new evidence on the role of various economic institutions in
growth. While property-rights and free-trade institutions have been shown to contribute
to differences in long-run growth between rich and poor countries, and while labor- and
1 With the limited country samples, there is a distinct trade-off between incorporating the added observations from the full
world sample and restricting the economic relationships to being the same across all countries. Throughout the analysis, we
provide information on the similarities and differences of developed and developing countries.