This post is motivated by reading Hanushek and Woessmann's (2008) "The Role of Cognitive Skills in Economic Development" in the Journal of Economic Literature. They revisit an old issue - the relationship between economic growth and education. The bottom line of what they are saying is the following: conventional measures of educational attainment, i.e. years of schooling, are not reliable. Especially in cross-country analysis. One year in a German school is not the same as a one year in a Ugandan. And I can personally attest that one year in the University of Latvia is not the same as one year in a U.S. university. What they suggest is to use data on cognitive skills instead, provided by international initiatives such as OECD's PISA (Program for International Student Assessment), which attempts to test students' achievements in a number of areas such as math and sciences. Hanushek and Woessmann show that these measures of cognitive skills do a much better job explaining the relationship between education and economic growth.

Now this raises some questions. In terms of number of years of education, Latvia probably ranks among the top countries in the world. Everyone here seems to have a master’s degree in something. So I dug into the results of PISA 2006 round to see whether what we see is what we get (and I have suspicions about this). Actually, it’s not bad at all. In terms of sciences, Latvian students got an average score of 490 points. This is just a bit below OECD average and higher than Russia (490) or some exotic places like Kirgizstan (322). Until you look at Estonia’s 531 points. Moreover, in terms of he distribution of science score, it seems Latvian students are some kind of ‘gray mass’ compared to Estonians. The percentage of ‘dumb’ Estonian students (level 1 or less) is 7.7%. The percentage of ‘dumb’ Latvians is 17.4%. Some 11.5% of Estonians are sort of ‘super-smart’, scoring level 5 or higher. In contrast, only 4.1% of Latvians scored as ‘super-smart’.

Is this just a curiosity? Not according to Hanushek and Woessman. In their regressions of growth rates in 1960-2000 on a bunch of factors, including cognitive test scores, a difference of 41 points implies roughly 0.8 percentage point of growth. These small growth rates can be quite deceptive. Suppose two countries start with the same income, but income of country L grows at an average rate of6% per year, and that of country E grows at 6.8% a year. After 20 years the income of country E will be 15% higher than that of country L. In 30 years country E will be richer by 25%.

Which all means that it’s quite important to know why Estonians are 41 points better in PISA science tests. Are they genetically superior? Do they spend more on schools? Do they pay more to their teachers?

One also hears weird stories about today’s schools in Latvia. A friend of mine once told me that his daughter’s school increased the number of lessons in music and decreased the number of physics lessons to just one in two weeks. Reportedly, the school obeyed to a new directive from the ministry of education. Which makes me wonder: Do Estonians sing?