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The role of cognitive skills in economic development

  • Hanushek, Eric A.
  • Wößmann, Ludger

The role of improved schooling, a central part of most development strategies, has become controversial because expansion of school attainment has not guaranteed improved economic conditions. This paper reviews the role of cognitive skills in promoting economic well-being, with a particular focus on the role of school quality and quantity. It concludes that there is strong evidence that the cognitive skills of the population - rather than mere school attainment - are powerfully related to individual earnings, to the distribution of income, and to economic growth. New empirical results show the importance of both minimal and high level skills, the complementarity of skills and the quality of economic institutions, and the robustness of the relationship between skills and growth. International comparisons incorporating expanded data on cognitive skills reveal much larger skill deficits in developing countries than generally derived from just school enrollment and attainment. The magnitude of change needed makes clear that closing the economic gap with developed countries will require major structural changes in schooling institutions.

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Paper provided by University of Munich, Department of Economics in its series Munich Reprints in Economics with number 20454.

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Date of creation: 2008
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Publication status: Published in Journal of Economic Literature 3 46(2008): pp. 607-668
Handle: RePEc:lmu:muenar:20454
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