1. Contribution of Education and Training to Innovation and Growth
Ludger Wößmann
University of Munich and Ifo Institute
Contribution of the European Expert Network on Economics of Education (EENEE) to the
Symposium on the Future Perspectives of European Education and Training for Growth, Jobs and Social Cohesion
Brussels, June, 2007

2. Education in Growth Research
Theory
Augmented “neoclassical” growth theories
Education as “human capital”
Theories of endogenous growth
Education  new ideas = innovation = technical change
Theories of knowledge diffusion
Education  adoption of new ideas generated abroad
Initial evidence
Early cross-country growth regressions
Measuring education by average years of schooling
Most recent version of available data:

3. Quantity of Schooling and Economic Growth
Added-variable plot of regression of average annual growth rate of real GDP per capita in on initial average years of schooling and initial level of real GDP per capita. Source: Hanushek/Wößmann (2007).

4. Educational Quality: International Student Achievement Tests
Measuring knowledge, not sitting in the classroom
International agencies conducted 36 international tests of students’ performance in cognitive skills since mid-1960s
Combine tests on a common scale, mapped to PISA (Hanushek/Wößmann 2007)

5. Educational Quality and Economic Growth
Added-variable plot of regression of average annual growth rate of real GDP per capita in on initial level of real GDP per capita, average student achievement test scores, and initial average years of schooling. Source: Hanushek/Wößmann (2007).

6. Education as Determinant of Growth of Income per Capita, 1960-2000
Educational quality – measured by international tests of math and science – has a powerful effect on national growth rates
Increases explanatory power of model from ¼ to ¾
Renders effect of quantity of schooling insignificant!
Estimated effect is extremely robust to a variety of alternative specifications, observation periods, and tests of alternative mechanisms
True both among OECD countries and among developing countries
True in both sub-periods, and
True for tests performed until 1984  growth

7. Education and Innovation
Relative role of minimal and high-level skills
Result: both a decent “education for all” and a sufficient number of “rocket scientists” are important for growth
Panel data evidence
Mechanism of impact of educational quality on growth:
Primarily through affecting an economy’s rate of technical progress
Rather than through increasing returns to a year of education or through static upward shift in production function as a whole

8. Additional Analyses Within-country analysis: Variation over time:
In cross-country work, other factors that affect growth, such as efficient market organizations, may be associated with productive schools
Concentrate on immigrants to US (Hanushek/Kimko AER 2000):
Immigrants who received their education in home countries that have higher test scores earn more in the US
Immigrants who received their education in the US do not see any earnings advantage linked to cognitive skills of their home country
Variation over time:
Improvements in test scores since early 1970s are related to increasing trends in growth rates

9. Improved Test Scores = Improved Growth Performance
Trend in growth rates,
Trend in test scores since early 1970s

10. The Implications of Improved Educational Quality
Two aspects of any educational reform plan important:
Magnitude of reform accomplished?
Benchmark: 0.5 standard deviation improvement
How fast?
School reform policies taking 10, 20, or 30 years (operating linearly)
Impact on economy will not be immediate: new graduates from school will initially be a small to negligible portion of labor force
Full impact is not felt until 35 years past full completion of reform
Simulation of impact on economy:

11. Improved GDP with Moderately Strong Knowledge Improvement (0.5 s.d.)

12. Conclusions: Education  Innovation and Growth
Educational quality – measured by what people know – has powerful effects on economic growth.
Extremely robust relationship
Improvements over time
Both a decent “education for all” and a sufficient number of “rocket scientists” are important for growth.
Mechanism appears to operate primarily through affecting rate of technical progress.
Policies to promote long-run economic performance should concentrate on effective improvement of quality of education.

13. The EENEE Website – www.education-economics.org –
as a forum to promote and disseminate research on the Economics of Education in Europe:
Economics of Education
References
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