There is ample anecdotal and correlational evidence suggesting that education
and economic growth are related, but the evidence points in a variety of
directions. For instance, if one favors the education-innovation link, then one
might compare Europe and the U.S. in recent years, when Europe has grown
more slowly. Sapir (2003) and Camdessus (2004) argue that the slower growth
may have been caused by the European Union's relatively meager investment
of 1.1 percent of its gross domestic product in higher education, compared to 3
percent in the U.S. One might also look at studies such as Scherer and Hue
(1992), who--using data on 221 enterprises from 1970 to 1985--show that
enterprises whose executives have a high level of technical education spend
more money on research and development that lead to innovations.
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If one favors imitation or other channels through which education affects
growth, one might note that, in the thirty years after World War II, Europe
grew faster than the U.S. even though it invested mainly in primary and
secondary education. Similarly, the "Asian miracle" (high productivity growth
in Asian countries like South Korea) is associated more with investments in
primary and secondary education than with investments in higher education.
Examining cross-country correlations, Krueger and Lindahl (2001) conclude
that "[overall,] education [is] statistically significantly and positively associated
with subsequent growth only for the countries with the lowest education."
Clearly, the education-growth relationship is not so simple that one can
compute average years of education in a state and confidently predict growth.
We believe our model clarifies matters
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