Quality of schools is critical for economic growth in developing countries, Stanford expert says

Stanford economist Eric Hanushek said that a country's economic growth is directly based on the cognitive skills of the population, or the "knowledge capital" of a nation.

The quality rather than the quantity of education is key to boosting a nation’s economy, especially in the developing world, a Stanford scholar writes.

schoolchildren in a classroom reading at their desks

Stanford economist Eric Hanushek says a focus on human capital in schools often pays too much attention on time spent in the classroom and not enough on the quality of students’ education. (Image credit: Monkey Business Images/Shutterstock)

Rates of school attendance, student enrollment and years of school do not matter as much as many would believe. However, the schools’ ability to improve students’ basic skills in math and literacy are important to economic growth.

“If there is going to be inclusive economic development across the world, attention must focus on school quality and having all students achieve basic skills,” wrote Eric Hanushek, a Stanford economist, in a new study published in Science magazine.

School quality issues are clearly important for the United States, said Hanushek, the Paul and Jean Hanna Senior Fellow at Stanford’s Hoover Institution. Hanushek noted that the United States currently ranks 29th in the world in its overall score on the globally used Programme for International Student Assessment (PISA) mathematics and science tests. As defined by tests like the PISA, the United States can gain significantly from improving its schools.

Nonetheless, he added, the implications are more serious for developing countries because they have not yet built knowledge-based economies.

Why is growth so important? Hanushek points out that with per capita gross domestic product (GDP) growing by an average of 4.5 percent annually since 1960, people in East Asia – home to societies increasingly built on knowledge and skills – are about nine times as prosperous as two generations ago.

By contrast, the average person in Latin America is only about two and a half times as prosperous, he said. These differences in growth reflect differences in achievement. For example, in international math and science tests given in 9th grade, the average student in Honduras is more than six years behind the average 9th-grade student in Singapore.

The research shows that differences in years of school attainment cannot account for either the strong East Asian growth or the weak Latin American growth. Instead, differences in average math and science test scores account for both phenomena.

Misguided policies

In the past quarter-century, many experts have called for a focus on “human capital” in schools and the marketplace. Human capital is the stock of knowledge, habits, and social and personality attributes, including creativity, that have economic value and that are rewarded in the labor market.

But Hanushek said this movement toward increased human capital has been misguided in its implementation, as it has led to policies largely seeking to increase head counts, enrollment and retention in schools. It ignores the importance of quality issues related to cultivating skills and knowledge among students.

“We argue that too much attention is paid to the time spent in school, and too little is paid to the quality of the schools and the types of skills developed there,” Hanushek wrote with co-author Ludger Woessmann, an economics professor at the University of Munich.

Knowledge capital different

The study expands upon a recent book by Hanushek and Woessmann, The Knowledge Capital of Nations, which examines scores on international math and science tests for various countries between 1964 and 2003. Significantly, the new study includes a measure that Hanushek calls “knowledge capital,” defined as the cognitive skills of the population.

Knowledge capital is very different from the traditional measure of human capital of “school attainment” – defined as the highest level of education completed. Student enrollment measures do not reflect how much students are learning, the researchers emphasize.

In fact, in regard to building up a country’s GDP growth, the researchers arrived at these key findings:

  • Cognitive skills are highly related to growth.
  • School attainment has no independent effect on growth after allowing for what students have learned (as measured by the international tests).
  • Growth in East Asia and Latin America as defined by knowledge capital holds true for the rest of the world as well.

Highly skilled workforces

In an interview, Hanushek said that knowledge capital is important to a developing society’s economic growth if it wants to join the economically advanced economies. The track record shows that the leading economies of the world are becoming knowledge-based economies.

“They require both the skills to innovative and a highly skilled workforce to execute new designs. As economies move from agriculturally based to manufacturing based to knowledge based, the importance of cognitive skills becomes magnified,” he said.

Moreover, Hanushek said, growing economies are marked by rapidly changing job markets, where individuals must adjust to new demands.

“It is easy to see change everywhere around us. For example, the iPhone is less than 10 years old, but its store now has over a million apps. Basic cognitive skills give individuals the ability to capitalize on new opportunities as well as to adapt to changed conditions when old jobs disappear,” he said.

Media Contacts

Eric Hanushek, Hoover Institution: (650) 736-0942, hanushek@stanford.edu
Jenny Mayfield, Hoover Institution: (650) 723-0603, jennymayfield@stanford.edu
Clifton B. Parker, Stanford News Service: (650) 725-0224, cbparker@stanford.edu