A rigorous, pathbreaking analysis demonstrating that a country's prosperity is directly related in the long run to the skills of its population.

In this book Eric Hanushek and Ludger Woessmann make a simple, central claim, developed with rigorous theoretical and empirical support: knowledge is the key to a country's development. Of course, every country acknowledges the importance of developing human capital, but Hanushek and Woessmann argue that message has become distorted, with politicians and researchers concentrating not on valued skills but on proxies for them. The common focus is on school attainment, although time in school provides a very misleading picture of how skills enter into development. Hanushek and Woessmann contend that the cognitive skills of the population—which they term the “knowledge capital” of a nation—are essential to long-run prosperity.

Hanushek and Woessmann subject their hypotheses about the relationship between cognitive skills (as consistently measured by international student assessments) and economic growth to a series of tests, including alternate specifications, different subsets of countries, and econometric analysis of causal interpretations. They find that their main results are remarkably robust, and equally applicable to developing and developed countries. They demonstrate, for example, that the “Latin American growth puzzle” and the “East Asian miracle” can be explained by these regions' knowledge capital. Turning to the policy implications of their argument, they call for an education system that develops effective accountability, promotes choice and competition, and provides direct rewards for good performance.

Eric A. Hanushek is Paul and Jean Hanna Senior Fellow and at the Hoover Institution of Stanford University. Hanushek and Woessmann are coauthors (with Paul E. Peterson) of Endangering Prosperity: A Global View of the American School.

Ludger Woessmann is Professor of Economics at the University of Munich and Director of the ifo Center for the Economics of Education.

Series Foreword ix
Preface xi
1 Introduction 1
2 A Structure for Understanding Growth 9
3 Knowledge Capital and Growth: The Main Results 39
4 Causation 79
5 Developing Countries 109
6 Developed Countries 143
7 The Economic Value of Educational Reform 157
8 Policies to Improve Knowledge Capital 185
Notes 205
References 231
Index 255