The Education-growth Nexus Across OECD Countries: Schooling Levels and Parameter Heterogeneity

More education is good for growth but what kind of education? This paper tries to contribute to this discussion along two dimensions. We try to disentangle the relative growth returns of primary, secondary and tertiary education, while at the same time accounting for heterogeneity in the relationship among OECD countries. To achieve our goal we estimate a convergence regression derived from a human capital-augmented exogenous growth model using the Pooled Mean Group estimator proposed by Pesaran, Shin and Smith (1999) that imposes common long-run relationships across countries while allowing for heterogeneity in the short run responses and intercepts. The use of estimators that allow for a greater degree of parameter heterogeneity than is common in empirical growth studies improves the results of the estimation of the education-schooling levels-growth link: we detect a positive and significant relationship not only between higher education and growth but also between growth and either secondary or primary education. Thus, the evidence analyzed here points to the need to develop empirical growth studies that consider the existence of a higher degree of heterogeneity in cross-country studies, provided there are enough time series observations.