This book advances the simple argument that long-run economic growth is overwhelmingly a function of the cognitive skills of the population, or the “knowledge capital” of a nation. This hypothesis about the relationship between cognitive skills (as consistently measured by international student assessments) and economic growth is subjected to a series of tests including alternate specifications, different subsets of countries, and econometric analysis of causal interpretations. The main results are remarkably robust, and equally applicable to developing and developed countries. For example, tw ... More

This book advances the simple argument that long-run economic growth is overwhelmingly a function of the cognitive skills of the population, or the “knowledge capital” of a nation. This hypothesis about the relationship between cognitive skills (as consistently measured by international student assessments) and economic growth is subjected to a series of tests including alternate specifications, different subsets of countries, and econometric analysis of causal interpretations. The main results are remarkably robust, and equally applicable to developing and developed countries. For example, two largely unsolved historical mysteries – the “Latin American growth puzzle” and the “East Asian miracle” – are completely explained by consideration of knowledge capital. The central importance of cognitive skills allows one to calculate the economic benefits of improved skills, and by implication of improved schools. The historical consequences of increased knowledge capital prove to be huge – multiples of GDP for achievable improvements in schools. Turning to the policy implications, existing research evidence suggests the value of an education system that develops effective accountability, promotes choice and competition, and provides direct rewards for good performance. While many school reforms are politically difficult, this analysis underscores the substantial costs of the status quo.