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How Much Do Educational Outcomes Matter in OECD Countries?

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Author Info

  • Hanushek, Eric A.

    ()
    (Stanford University)

  • Woessmann, Ludger

    ()
    (Ifo Institute for Economic Research)

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.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 5401.

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Length: 68 pages
Date of creation: Dec 2010
Date of revision:
Publication status: published in: Economic Policy, 2011, 26 (67), 427-491
Handle: RePEc:iza:izadps:dp5401

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Keywords: cognitive skills; OECD; growth; education; projection;

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  1. Daniel Cohen & Marcelo Soto, 2001. "Growth and Human Capital: Good Data, Good Results," OECD Development Centre Working Papers 179, OECD Publishing.
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  13. repec:lan:wpaper:971 is not listed on IDEAS
  14. Barro, Robert J. & Lee, Jong Wha, 2013. "A new data set of educational attainment in the world, 1950–2010," Journal of Development Economics, Elsevier, vol. 104(C), pages 184-198.
  15. Eric Eide, 2004. "The Teacher Labour Market and Teacher Quality," Oxford Review of Economic Policy, Oxford University Press, vol. 20(2), pages 230-244, Summer.
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