Abstract:
We investigate whether increasing the education quality causes increases in economic growth allowing poorer countries to catch up. To this end, we extend Nelson-Phelps's classic paper by introducing differences in education quality (proxied by students' performance on the Program for International Student Assessment [PISA] test) in a leader-follower type of growth model with knowledge diffusion. We use students' performance in a standardized international PISA test to measure education quality's impact on economic growth using a panel Vector Error Correction allowing for cross-correlation in the co-integration analysis in a set of all countries observed over the years 1975-2018. Additionally, we consider the possible reverse causality that characterizes economic development and the quality of education. Our results confirm the relevance of education quality as a significant causal factor of economic growth. However, further analyses indicate that the discussed relation is long-run, which may have important implications for policymakers.