Abstract:

In this paper we check the main traditional suspects for explaining growth of GDP per-employee using a panel analysis of forty-one developed and developing countries in the period 1970-2010. While well-known explanations like cultural, geographical, institutional and government policy were found significant, we show that higher education is the single crucial factor for explaining long-term GDP per-employee. According to our analysis the reform implemented by Asian Tigers, which implied a transition from primary and secondary education to an increased share of tertiary education among the working population, allowed these countries to reach the level that prevails in developed economies. In contrast, Latin American countries that did not pursue higher education reform, did not achieve sizable growth. Our specification shows that increasing the share of higher education in the working population results in marginal decreasing returns though positive.