It’s Human Capital Again: The Centrality of Higher Education in Explaining GDP per Employee

This paper analyzes the transition of countries between educational levels in the period 1970-2010 in order to assess the contribution of human capital to the increase of GDP per employee. Using a sample of 41 countries that includes both developing and developed economies, we show that the transition from primary or no schooling, to significant levels of higher education is a crucial factor in explaining growth. By using a panel cointegration framework and a simulation that quantifies the contribution of education to the increase in GDP per employee we show that escalating the educational ladder can make the difference between remaining a developing economy and becoming a developed one. According to our analysis the reform implemented by Asian Tigers, which implied a transition from primary and secondary education to tertiary education, allowed these countries to reach the level that prevails in developed economies. In terms of GDP per employee, this pattern dominates the one performed by developing countries, where educational reform was based on a transition from analphabetism or primary school to secondary education.

Keywords: Human Capital, Educational Levels, Growth