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IQ in the Ramsey Model: A Naive Calibration

  • Garett Jones

    ()

    (Economics and Finance Southern Illinois University)

I show that in a conventional Ramsey model, between one-fourth and one-half of the global income distribution can be explained by a single factor: The effect of large, persistent differences in national average IQ on the private marginal product of labor. Thus, differences in national average IQ may be a driving force behind global income inequality. These persistent differences in cognitive ability--which are well-supported in the psychology literature--are likely to be somewhat malleable through better health care, better education, and especially better nutrition in the world’s poorest countries. A simple calibration exercise in the spirit of Bils and Klenow (2000) and Castro (2005) is conducted. I show that an IQ-augmented Ramsey model can explain more than half of the empirical relationship between national average IQ and GDP per worker. I provide evidence that little of the IQ-productivity relationship is likely to be due to reverse causality.

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Paper provided by Society for Economic Dynamics in its series 2006 Meeting Papers with number 213.

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Date of creation: 03 Dec 2006
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Handle: RePEc:red:sed006:213
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