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October 16, 2017

Schooling, scores, and state economies

Educational quantity and quality contribute equally to states' economic growth.

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In 2007, Connecticut’s GDP per capita doubled that of West Virginia. This is fairly common; states have a wide range of GDPs per capita, and their growth rates are just as diverse. South Dakota’s GDP per capita increased by 187 percent between 1970 and 2007. Meanwhile, Michigan’s grew by only 77 percent.

In a new paper in the American Economic Journal: Macroeconomics, authors Eric Hanushek, Jens Ruhose, and Ludger Woessmann explain that state differences in knowledge capital can account for some of this variation in GDP per capita.

The authors break down knowledge capital into two parts: the quantity of education (as measured by years of schooling) and the quality of education (as measured by test scores). After adjusting for interstate and international migration, they find that 20 to 30 percent of the variation in GDP per capita is due to differences in knowledge capital — half from quantity and half from quality.

Still, the effects of knowledge capital differ from state to state. For example, test scores are not a large factor for Iowa, but they do explain much of Massachusetts’ growth. The figure below shows how much growth in state GDP per capita is attributable to citizens’ years of schooling and test scores.

Figure 10 from Hanushek et al. (2017)

Note: This figure excludes Alaska, Wyoming, and Delaware.

Boosting GDP per capita takes more than sound economic policy. It also requires a focus on education. With initiatives that promote educational attainment and higher school quality, states may find that they are spurring their economies, too.