Thursday, March 18, 2010

Education Pays Off

An interesting article from an issue of the New York Times from last October provides this graph illustrating its thesis that education level is strongly determinant of long term economic growth. It provides the following cautionary paragraphs:
One reason that historical education levels have such predictive power is that educational investment is extremely persistent. School enrollments in 1900 can explain more than 72 percent of the variation in years of schooling across countries today, as measured by data collected by Robert J. Barro and Jong-Wha Lee; a similar degree of persistence occurs across United States cities.......

One explanation for the extraordinarily strong relationship between national earnings and education is that the correlation is largely spurious.

Perhaps, richer countries choose to become more educated, so that higher income causes higher levels of education rather than the reverse. Perhaps countries with other positive attributes, like better governments, are both richer and better schooled. The individual level research has labored hard to find so-called “natural experiments” — like mandatory schooling laws that start abruptly and relatively arbitrarily in a particular year in a particular state — that enable researchers to estimate the returns to education holding individual aptitude constant. Cross-country work is not nearly as well-identified and it never will be.

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