Smart but Poor…

This article discusses the (surprising to some) LACK of empirical relationship b/t formal education and income at a national level –

Over the past decade it has became an article of faith that education and skills make a vital contribution to economic performance (1). Deficiencies in national labour productivity and economic growth are increasingly attributed not to inadequacies in productive investment, but to educational shortfalls and weak labour skills (2).

…’African countries with rapid growth in human capital [the fashionable term for people’s work abilities, especially levels of education] over the 1960 to 1987 period – countries like Angola, Mozambique, Ghana, Zambia, Madagascar, Sudan, and Senegal – were nevertheless growth disasters. Countries like Japan, with modest growth in human capital, were growth miracles. Other East Asian miracles like Singapore, Korea, China, and Indonesia did have rapid growth in human capital, but equal to or less than that of the African growth disasters. To take one comparison, Zambia had slightly faster expansion in human capital than Korea, but Zambia’s growth rate was seven percentage points lower.”

The Mallu economic malaise is a perfect example – statistically, at least, it’s the most educated state in India but, alas, also one of the poorest. Books, degrees, and examinations mean little for economic growth without a comprehensive social fabric that praises constructive, gritty real world results over idealized, intellectual banter….

8 thoughts on “Smart but Poor…

  1. Interesting article. Uninteresting statistics. Apples vs Oranges. Though you must start somewhere, these statistics need to be incorporated to a larger variable pool to come up with a better analysis of book smarts vs capital to support a hypothesis that degrees are a direct coorelation to economic success.

    Traveling through Africa, I always wondered: does anything function here like the rest of the world? Several countries later, my answer was was “no (though not in a negative way…There exists the Western civilization, the Eastern civilization, and then there is the African civilization).”

    However, social stability is extremely important as you mentioned. One may have the best engine in a car yet lack the funds to put decent tires on, therefore negating the superior engine. The sum of all parts argument.

  2. Sigh — Tyler should know better. There’s a difference between rate of change and absolute level. African countries grew rapidly in human capital b/c they started at a low level. They’re still at a low level b/c of brain drain. Japan didn’t grow as fast, but it has orders of magnitudes more educated people than most of Africa. Heck, it may have more educated and trained people than most of Africa combined.

    I agree with some aspects of his larger point, but only in the context of the econometric debate it sits in.

  3. And actually, the connection between human capital and economic development is one of the most robust ones in the growth literature. The author’s point was that the causality may be backwards, and for that reason, he was examining the question more closely, yet still not closely enough.

  4. So, ennis, it sounds like you’re in violent agreement that simple edumacation ain’t ’nuff to bring the Bling?

  5. At the risk of being too un-pc for this site, i would suggest reading this recent new paper. It makes the point that IQ ranks with the highest yet econometrically determined predictors of national outcomes – and is superior to standard education measures as a predictor of human capital.

    They compare it to Sala-i-Martin’s recent paper that ran 2 million regressions to find the best growth predictors in a set of data, and found that it was better than almost everything in Sala’s set.

    Human capital plays an important role in the theory of economic growth, but it has been difficult to measure this abstract concept. We survey the psychological literature on cross-cultural IQ tests and conclude that modern intelligence tests provide one useful measure of human capital. Using a new database of national average IQ along with a methodology derived from Sala-i-Martin [1997a], we show that in growth regressions that include only robust control variables, IQ is statistically significant in 99.7% of these 1330 regressions. A 1 point increase in a nationÂ’s average IQ is associated with a persistent 0.16% annual increase in GDP per capita… We also evaluate the explanatory power of IQ in growth regressions that include Sala-i-Martin’s education measures. Among these 56 education-related regressions, IQ was statistically significant in every one, thus passing not only Sala-i-Martin’s robustness test, but also LeamerÂ’s [1983, 1985] extreme bounds test. While one might expect that at least some linear combination of primary, secondary, and higher education measures could eliminate the statistical significance of IQ, we did not find this to be the case… Finally, for an overall assessment of how IQ compares to other common growth variables, consider Sala-i-Martin’s original results, which used combinations of 62 growth variables in over two million regressions. Among his top 21 regressors–the ones which he considered robust–the median regressor was statistically significant in 76.4% of cases, with a range from 100% (for fraction Confucian) to 2.81% (for revolutions and coups). Fraction Confucian was the only regressor that passed an extreme bounds test. Only eight of his top 21 had coefficients over three standard errors from zero, while in our full-sample results using his top 21 growth variables, IQÂ’s coefficient is over five standard errors away from zero. For his overall best performing variable, equipment investment, the coefficient estimate was 5.32 standard errors away from zero. IQ would thus appear to fit comfortably in the top half of Sala-i-Martin’s top 21 growth variables.

    Blogged in depth here, with plenty of citations for skeptics to run to ground.

  6. They’re still at a low level b/c of brain drain.

    But this is not really a good explanation, because:

    1) Japan rapidly developed during the Meiji restoration by sending its students to study abroad and learn Western techniques.

    In order to transform the agrarian economy of Tokugawa Japan into a developed industrial one, many Japanese scholars were sent abroad to study Western science and languages, while foreign experts taught in Japan. The transportation and communication networks were improved by means of large governmental investments. The government also directly supported the prospering of businesses and industries, especially the large and powerful family businesses called zaibatsu.

    People opposed to “brain drain” would have opposed this in the short term.

    2) More contemporaneously, Taiwan, China, Singapore, South Korea, and India all send tons of students and/or expats abroad – and they are some of the fastest growing countries in the world. THis is because – as Anna Lee Saxenian shows – “brain drain” is really about brain circulation. Taiwan’s semiconductor industry, for example, is largely the consequence of Taiwanese migrants to the US setting up trans-pacific supply lines with relatives back home. The same is true for Indian outsourcing – guys came over here to do Y2K programming, built their credibility, and now Indians export software.

    Forcing your most intelligent people to stay in the country is not a historically proven way to succeed economically.

  7. I believe studies correlating IQ with national advancement are inherently flawed. For example, “IQ and the wealth of Nations” can hardly be considered a scientific work. It uses a ‘hodge-podge’ of IQ statistics from various studies, and often predicts the IQ of nations based upon its neighbors. For example the book uses a single IQ study for India, a country of over 1 billion people. Reading further you will find that this study was of 540 orphaned children. Given that some 42% of children in India are malnourished,it is not hard to speculate that this was the case for these orphans as well. There are no indicators on how the IQ is calculated. It is well known that verbal ability may or may not correlate with mathematical ability for example. Yet the study has proposed an IQ of 81 as an average for Indians, which is now basically taken as gospel.

    The study also reports an IQ of 100 for China. However again this is suspect since it was actually provided by the Chinese government. Personally I believe the actual correlation is in reverse. Economic success permits a nation’s IQ average to reach its potential. This is why Japan, Korea and the European countries have a high IQ average. The US average 98 is lower, not because the US population actually has less intelligent people…obviously as its phenomenal ability to produce intellectuals of the highest calibre shows, but because of the inequal distribution of wealth. There was a study on the children of black NBA players a few years ago(will find the data). The average IQ of this group was 106. Clearly playing in the NBA does not require a special level of traditional IQ, so this is evidence that IQ is dependent on economic prosperity.

  8. M. Chretien:

    There’s a problem with you prosperity-causes-high-IQ theory: The East Asians were smart back when they were poor. See figure 3 of my paper here:

    http://www.siue.edu/~garjone/naive.pdf

    You can pull my data off of Steve Sailer’s website (http://www.isteve.com/IQ_Table.htm), if you’re so inclined.

    For much, much, more data along those lines, check out Richard Lynn’s new book, Race Differences in Intelligence: An Evolutionary Analysis. He has hundreds of studies from across the 20th century, and all tell the same story. Lynn’s not relying on just one or two flawed studies…Race Differences is reviewed here:

    http://www.gnxp.com/blog/2006/02/world-of-difference-richard-lynn-maps.php

    Apparently, the appealing idea that “prosperity causes IQ” isn’t going to do the heavy lifting that you need….I hope many more people will join in this important research agenda to find out what does actually cause IQ. It’s time to move beyond hand-waving and wishful thinking….