EDUCATIONAL OUTCOMES IN OECD COUNTRIES
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past 50 years as a benchmark, the potential for welfare gains from better long-run,
supply-side policies exceeds by far the potential from further improvements in short-run
demand management.” (Lucas (2003))
Our results show that education policy is closely associated with the long-run growth
potentials of OECD countries. The regression analyses suggest that direct measures of
educational outcomes, in terms of cognitive skills on international achievement tests,
emerge as the one strong policy factor underlying growth differences across OECD
countries. By contrast, a long battery of institutional and regulatory measures does not
add to an explanation of the substantial differences in long-run growth rates that exist
across OECD countries, mainly because all OECD countries share a common set of
basic institutional structures that ensure a general functioning of market economies.
Considering different skill dimensions, basic skills are robustly related to OECD-country
growth, whereas the relation of the top-skill dimension with growth is at least
substantially smaller than in non-OECD countries. When cognitive skills are accounted
for, tertiary attainment is not significantly associated with long-run growth differences
across OECD countries.
Our projection analysis suggests that, under plausible parameter assumptions, the real
present value of future improvements in GDP due to challenging but achievable
educational reform scenarios amounts to $90-275 trillion. A modest goal of having all
OECD countries boost their average PISA scores by 25 points (one-quarter standard
deviation) implies an aggregate gain of OECD GDP of $90-123 trillion dollars. More
aggressive goals, such as bringing all students to a level of minimal proficiency for the
OECD or bringing all OECD countries to the level reached by Finland today, would
imply aggregate GDP increases beyond $200 trillion according to historical growth
relationships. The precise size of the reform value of such long-run projections is clearly
up for debate. Nevertheless, our sensitivity analyses indicate that, while differences
between an endogenous and neoclassical model framework and alternative parameter
choices clearly make a difference, the estimates of the long-run effect of reasonable
education reforms still yield enormous values no matter what. The gains from education
reform far exceed the level of stimulus funds in the current global recession.
Our projections do not by themselves indicate how schools should be changed. Nor do
they solve the political economy issues of how any change should be achieved
politically. They simply underscore the high cost of political inaction or misdirection.
In order to provide some guidance, we review the extensive relevant research on the
determinants of educational achievement. Several conclusions appear. First, many of
the traditional policies of simply providing more funds for schools or of adding specific
resources such as smaller classes do not provide much hope for significant
improvements in student achievement. Second, a growing body of research shows that
teacher quality is a primary driver of student achievement but that differences in quality
are not closely related to teacher education and experience. Because teacher quality is
not easily measured and regulated, effective policies to improve quality appear to
necessitate more careful attention to the incentives faced by schools and teachers. Here
the research on educational institutions suggests productive policy approaches. In