Are average years of education losing predictive power for economic growth? An alternative measure through structural equations modeling

Abstract

The accumulation of knowledge required to produce economic value is a process that often relates to nations economic growth. Some decades ago many authors, in the absence of other available indicators, used to rely on certain measures of human capital such as years of schooling, enrollment rates, or literacy. In this paper, we show that the predictive power of years of education as a proxy for human capital started to dwindle in 1990 when the schooling of nations began to be homogenized. We developed a structural equation model that estimates a metric of human capital that is less sensitive than average years of education and remains as a significant predictor of economic growth when tested with both cross-section data and panel data.