Working Paper: NBER ID: w7591
Authors: Alan B. Krueger; Mikael Lindahl
Abstract: This paper tries to reconcile evidence from the microeconometric and empirical macro growth literatures on the effect of schooling on income and GDP growth. Much microeconometric evidence suggest that education is an important causal determinant of income for individuals within countries. At a national level, however, recent studies have found that increases in educational attainment are unrelated to economic growth. This finding appears to be a spurious result of the extremely high rate of measurement error in first-differenced cross-country education data. After accounting for measurement error, the effect of changes in educational attainment on income growth in cross-country data is at least as great as microeconometric estimates of the rate of return to years of schooling. Another finding of the macro growth literature - that economic growth depends positively on the initial stock of human capital - is shown to result from imposing linearity and constant-coefficient assumptions on the estimates. These restrictions are often rejected by the data, and once either assumption is relaxed the initial level of education has little effect on economic growth for the average country.
Keywords: education; economic growth; human capital; income growth
JEL Codes: J24; E20
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Changes in Educational Attainment (I21) | Income Growth (Cross-Country) (O57) |
| Initial Stock of Human Capital (J24) | Economic Growth (O49) |
| Measurement Errors in Educational Data (C83) | Economic Growth (O49) |
| Econometric Assumptions (C51) | Positive Correlation between Initial Human Capital and Economic Growth (O49) |
| Education (I29) | Individual Income (D31) |