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Objectives or purposes
Public and private investments in education are driven by estimated rates of return on investment. Analysis of data from the 1994 International Adult Literacy Survey (IALS) and the 2003 Adult Literacy and Life Skills Survey (ALL) revealed three important insights, including that:
•Differences in average literacy skill explained over 55% of difference in the rates of GDP and labor productivity over the long term.
•Higher proportions of low skilled adults reduce long term rates of GDP labor productivity growth
•Changes in literacy skills lead changes in growth rates, a finding that suggests a causal relationship
The economy has changed in significant ways since 2003 in response to globalization, falling trade barriers, automation and a rapid increase in the global supply of literacy skill.
The current analysis replicates the 1994 and 2003 analyses with a view to determining how the impact of literacy skill on growth rates has changed.
Perspective(s) or theoretical framework
The study of the determinants of economic growth has been an important fields of economic research. Romer’s (1986) and Lucas’s (1988) endogenous growth theories precipitated work by Baumol (1986), Barro (1991) and Baro and Sala-i-Martin (1992), Mankiw, Romer and Weil (1992) to confirm the neoclassical convergence hypothesis. In the neoclassical model the rate of productivity growth depends solely on the rate of technical progress (Solow, 1956) with human capital having a transitory impact.
Recent advances in the theory of skill-biased technical change posit a more complex relationship in which human capital and technology, one in which the two interact to amplify growth in populations with high levels of literacy and other cognitive skills (Riddell and Green, 2015).
Methods, techniques, or modes of inquiry
The approach used involves estimation of a Cobb- Douglas production function with constant returns to scales and decreasing returns to capital augmented with the exogenous level of technical progress and stock of human capital. Each economy will converge to its own steady state instead of reaching a common one.
Data sources, evidence, objects, or materials
The study used estimates literacy skill derived for the 2011-12 Program for the Assessment of Adult Competencies and Coulombe’s estimates of capital investment and technical flows.
Results and/or substantiated conclusions or warrants for arguments/point of view
The analysis confirms that the impact of skill on national growth trajectories has grown. The impact of average literacy skill levels and the negative impact on growth of the proportion of adults below Level 3 on observed growth rates have both grown. More importantly, the analysis confirms that high levels of skill and technology interact to produce higher growth rates.
Scientific or scholarly significance of the study or work
The results obtained are of central importance to policy as they suggest that raising average literacy levels by reducing the proportions of adults with low levels of literacy skill will yield higher than anticipated growth rates, as this will allow higher proportions of workers to capture the full benefits of technical progress.