New ways of looking at old issues: inequality and growth

How to explain the surprising finding that more education did not lead to faster economic growth? Cross-national data on economic growth rates show that increases in educational capital resulting from improvements in the educational attainment of the labor force have had no positive impact on the growth rate of output per worker. In fact, contends Pritchett, the estimated impact of growth of human capital on conventional nonregression growth accounting measures of total factor productivity is large, strongly significant, and negative. Needless to say, this at least appears to contradict the current conventional wisdom in development circles about education's importance for growth. After establishing that this negative result about the education-growth linkage is robust, credible, and consistent with previous literature, Pritchett explores three possible explanations that reconcile the abundant evidence about wage gains from schooling for individuals with the lack of schooling impact on aggregate growth: - That schooling creates no human capital. Schooling may not actually raise cognitive skills or productivity but schooling may nevertheless raise the private wage because to employers it signals a positive characteristic like ambition or innate ability. - That the marginal returns to education are falling rapidly where demand for educated labor is stagnant. Expanding the supply of educated labor where there is stagnant demand for it causes the rate of return to education to fall rapidly, particularly where the sluggish demand is due to limited adoption of innovations. - That the institutional environments in many countries have been sufficiently perverse that the human capital accumulated has been applied to activities that served to reduce economic growth. In other words, possibly education does raise productivity, and there is demand for this more productive educated labor, but demand for educated labor comes from individually remunerative but socially wasteful or counterproductive activities - a bloated bureaucracy, for example, or overmanned state enterprises in countries where the government is the employer of last resort - so that while individuals' wages go up with education, output stagnates, or even falls. This paper - a product of the Poverty and Human Resources Division, Policy Research Department - is part of a larger effort in the department to investigate the determinants of economic growth.

Where Has All the Education Gone

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 quality of economic institutions, and 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.

The role of cognitive skills in economic development

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 pro- moting 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 indi- vidual earnings, to the distribution of income, and to economic growth. New empiri- cal results show the importance of both minimal and high level skills, the comple- mentarity 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 coun - tries than generally derived from just school enrollment and attainment. The mag- nitude 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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The Role of Cognitive Skills in Economic Development

https://mpra.ub.uni-muenchen.de/62288/1/MPRA_paper_62288.pdf

Aid and growth regressions

A new database on human capital stock in developing and industrial countries: Sources, methodology, and results

The authors describe the techniques and data adopted for the construction of a new series of estimates of the stock of education in 85 countries over 28 years (1960-87). It covers all the important developing regions except the republics of the former Soviet Union. The International Economics Department (IEC) continues a well-established trend in growth research of using educational stock (measured as mean school years of education of the labor force) as a proxy for human capital. The series are built from enrollment data using the perpetual inventory method, adjusted for mortality. Estimates are corrected for grade repetition among school-goers and country-specific drop-out rates for primary and secondary students. Enrollment data series used start as far back as 1930 for most countries, and even earlier for others. This reduces the need for backward extrapolation of enrollments to provide the initial estimates of the investment inventory.

Ashutosh Dubey

Papers

A new database on human capital stock in developing and industrial countries: Sources, methodology, and results

A new database on human capital stock : sources, methodology and results