The Knowledge Capital of Nations

From CESifo Book Series

The Knowledge Capital of Nations

Education and the Economics of Growth

By Eric A. Hanushek and Ludger Woessmann

A rigorous, pathbreaking analysis demonstrating that a country's prosperity is directly related in the long run to the skills of its population.





A rigorous, pathbreaking analysis demonstrating that a country's prosperity is directly related in the long run to the skills of its population.

In this book Eric Hanushek and Ludger Woessmann make a simple, central claim, developed with rigorous theoretical and empirical support: knowledge is the key to a country's development. Of course, every country acknowledges the importance of developing human capital, but Hanushek and Woessmann argue that message has become distorted, with politicians and researchers concentrating not on valued skills but on proxies for them. The common focus is on school attainment, although time in school provides a very misleading picture of how skills enter into development. Hanushek and Woessmann contend that the cognitive skills of the population—which they term the “knowledge capital” of a nation—are essential to long-run prosperity.

Hanushek and Woessmann subject their hypotheses about the relationship between cognitive skills (as consistently measured by international student assessments) and economic growth to a series of tests, including alternate specifications, different subsets of countries, and econometric analysis of causal interpretations. They find that their main results are remarkably robust, and equally applicable to developing and developed countries. They demonstrate, for example, that the “Latin American growth puzzle” and the “East Asian miracle” can be explained by these regions' knowledge capital. Turning to the policy implications of their argument, they call for an education system that develops effective accountability, promotes choice and competition, and provides direct rewards for good performance.


$35.00 X ISBN: 9780262029179 280 pp. | 6 in x 9 in 37 figures, 36 tables


  • Hanushek and Woessmann exploit recently connected data from TIMMS and PISA and other international assessments to construct the most sophisticated and comprehensive measures yet seen of learning across countries and over time.

    Education Next

  • In addition to compiling a data set of internationally comparable measures of cognitive skills, the authors have convincingly shown that such measures correlate highly with economic growth and cognitive skills can explain away large differences in growth rates between world regions… [A] valuable contribution and an interesting read.

    Mikael Lindahl

    Journal of Economic Literature


  • Knowledge is the foundation of economic prosperity. Sensible as it sounds, this idea has been sidelined recently by studies that find measures of educational attainment to be poor predictors of economic growth and by explanations that focus on the quality of legal and political institutions instead. This book redresses the balance, powerfully demonstrating that conventional measures of schooling miss a big part of the picture. It places learning and cognitive skills at the front and center of the policy agenda—for developed and developing nations alike.

    Dani Rodrik

    Albert O. Hirschman Professor, Institute for Advanced Study, and author of The Globalization Paradox

  • Attempts to put human capital as the fount of the huge differences in prosperity across nations have a mixed record. This thought-provoking book makes a strong argument that knowledge capital, which incorporates the crucial quality dimension of human capital, could be at the root of much of the variation we observe around the globe.

    Daron Acemoglu

    Elizabeth and James Killian Professor of Economics, MIT

  • That Hanushek and Woessmann are world experts on researching with international test score and education data is very clearly demonstrated in this book. It makes essential reading for anyone interested in differences in growth and in education performance across countries.

    Stephen Machin

    Professor of Economics, University College London, and Research Director, Centre for Economic Performance, London School of Economics