Education and Cross-Country Productivity Differences

In this paper, we study the effects of education on the total factor productivity (TFP) of a large number of countries. We estimate TFP using a variant of augmented Solow growth model in which health capital is one of the factors of production. We find that quantity of education significantly and positively affects TFP. This result is in contrast to the findings of the previous literature, that suggest that either the quantity of education does not matter for growth (e.g. Benhabib and Spiegel 1994, Caselli et al. 1996) or only the quality of education matters for growth (e.g. Hanushek and Kimko 2000). We also find that TFP differences explain about 1/3rd of per-capita real income differences across countries. This estimate is substantially lower than the existing estimates (e.g. Klenow and Rogriguez-Clare 1997, Hall and Jones 1999) which suggest that TFP differences are the dominant source of per-capita real income differences across countries.