rafmacalaba/datause-encoder-data huggingface dataset:
The role of education quality for
            economic growth
WPS4122

*

# **The Role of Education Quality in Economic Growth**

Eric A. Hanushek Hoover Institution Stanford University CESifo and NBER Stanford, CA 94305-6010, United States Phone: (+1) 650 / 736-0942 E-mail: hanushek@stanford.edu Internet: www.hanushek.net Ludger Wößmann University of Munich, Ifo Institute for Economic Research and CESifo Poschingerstr. 5 81679 Munich, Germany Phone: (+49) 89 / 9224-1699 E-mail: woessmann@ifo.de Internet: www.cesifo.de/woessmann

## **Abstract**

The role of improved schooling, a central part of most development strategies, has become controversial because expansion of school attainment has not guaranteed improved economic conditions. This paper reviews the role of education in promoting economic well-being, with a particular focus on the role of educational quality. It concludes that there is strong evidence that the cognitive skills of the population – rather than mere school attainment – are powerfully related to individual earnings, to the distribution of income, and to economic growth. New empirical results show the importance of both minimal and high level skills, the complementarity of skills and the quality of economic institutions, and the robustness of the relationship between skills and growth. International comparisons incorporating expanded data on cognitive skills reveal much larger skill deficits in developing countries than generally derived from just school enrollment and attainment. The magnitude of change needed makes clear that closing the economic gap with developed countries will require major structural changes in schooling institutions.

### World Bank Policy Research Working Paper 4122, February 2007

_The Policy Research Working Paper Series disseminates the findings of work in progress to encourage the exchange of ideas about development issues. An objective of the series is to get the findings out quickly, even if the presentations are less than fully polished. The papers carry the names of the authors and should be cited accordingly. The findings, interpretations, and conclusions expressed in this paper are entirely those of the authors. They do not necessarily represent the view of the World Bank, its Executive Directors, or the countries they represent. Policy Research Working Papers are available online at http://econ.worldbank.org._

* This project developed through conversations with Harry Patrinos, who provided useful comments and suggestions along the way. We have also benefited from comments by Martha Ainsworth, Luis Benveniste, François Bourguignon, Deon Filmer, Paul Gertler, Manny Jimenez, Ruth Kagia, Beth King, Lant Pritchett, and Emiliana Vegas. Support has come from the World Bank, CESifo, the Program on Education Policy and Governance of Harvard University, and the Packard Humanities Institute.
Differentiated products and evasion
            of import tariffs
Emerging literature has demonstrated
            some unique characteristics of trade in differentiated
            products. This paper contributes to the literature by
            postulating that differentiated products may be subject to
            greater tariff evasion due to the difficulties associated
            with assessing their quality and price. Using product-level
            data on trade between Germany and 10 Eastern European
            countries during 1992-2003, the authors find empirical
            support for this hypothesis. They show that the trade gap,
            defined as the discrepancy between the value of exports
            reported by Germany and the value of imports from Germany
            reported by the importing country, is positively related to
            the level of tariff in 8 out of 10 countries. Further, the
            authors show that the responsiveness of the trade gap to the
            tariff level is greater for differentiated products than for
            homogeneous goods. A one-percentage-point increase in the
            tariff rate is associated with a 0.6 percent increase in the
            trade gap in the case of homogeneous products and a 2.1
            percent increase in the case of differentiated products.
            Finally, the data indicate that greater tariff evasion
            observed for differentiated products tends to take place
            through misrepresentation of the import prices.
Differentiated products and evasion
            of import tariffs
WPS4123

# **Differentiated Products and Evasion of Import Tariffs**

# Beata S. Javorcik<sup>*</sup>

# and

# Gaia Narciso<sup>**</sup>

**Abstract:** An emerging literature has demonstrated some unique characteristics of trade in differentiated products. This paper contributes to the literature by postulating that differentiated products may be subject to greater tariff evasion due to the difficulties associated with assessing their quality and price. Using product-level data on trade between Germany and 10 Eastern European countries during 1992-2003, we find empirical support for this hypothesis. We show that the trade gap, defined as the discrepancy between the value of exports reported by Germany and the value of imports from Germany reported by the importing country, is positively related to the level of tariff in 8 out of 10 countries. Further, we show that the responsiveness of the trade gap to the tariff level is greater for differentiated products than for homogeneous goods. A one-percentage-point increase in the tariff rate is associated with a 0.6% increase in the trade gap in the case of homogeneous products and a 2.1% increase in the case of differentiated products. Finally, the data indicate that greater tariff evasion observed for differentiated products tends to take place through misrepresentation of the import prices.

Keywords: differentiated products, tariff evasion, transition countries World Bank Policy Research Working Paper 4123, February 2007 _The Policy Research Working Paper Series disseminates the findings of work in progress to encourage the exchange of ideas about development issues. An objective of the series is to get the findings out quickly, even if the presentations are less than fully polished. The papers carry the names of the authors and should be cited accordingly. The findings, interpretations, and conclusions expressed in this paper are entirely those of the authors. They do not necessarily represent the view of the World Bank, its Executive Directors, or the countries they represent. Policy Research Working Papers are available online at http://econ.worldbank.org._

> * World Bank and CEPR, MSN MC3-303, 1818 H St, NW, Washington DC, 20433. Email: bjavorcik@worldbank.org.

> ** Bocconi University, IEP, via Gobbi 5, 20136, Milano, Italy. Email: gaia.narciso@unibocconi.it. The authors wish to thank Torfinn Harding, Leonardo Iacovone, Bernard Hoekman, Molly Lipscomb, Maurice Schiff, Antonio Spilimbergo and David Tarr for their helpful comments and suggestions and Geoff Revell for research assistance.

1
Enhancing the efficiency of
            securities markets in East Asia
The authors explore the relative
            efficiency of stock markets across countries using newly
            available data on transactions costs and the quality of the
            informational environment of stock markets. These new
            measures are constructed from firm-level stock returns in a
            panel of 60 countries for the period 2000-04. The authors
            then develop a framework to understand the linkages between
            efficiency, liquidity, and their determinants. To give
            empirical content to the framework, they study the
            determinants of transactions costs and the quality of the
            informational environment. They find that some institutional
            arrangements-such as the availability of stock lending and
            short selling-and the openness of markets are associated
            with lower transactions costs. The authors also find that,
            although disclosure rules for directors and officers of
            listed firms are essential, the ability of shareholders to
            seek redress is more conducive to a better informational
            environment in stock markets. This in turn serves as the
            basis for the policy framework and recommendations for the
            East Asian region. In particular, the region needs to
            continue to strengthen the implementation and enforcement of
            corporate governance, to further enhance the market and
            institutional infrastructure, and focus on policy measures
            to foster a larger and more diversified investor base to
            continue to see gains in the efficiency of stock markets.
Rules of origin in services : a case
            study of five ASEAN countries
An important question in the design of
            bilateral and regional free trade agreements (FTAs) covering
            services is to what extent nonmembers benefit from the trade
            preferences that are negotiated among members. This question
            is resolved through services rules of origin. The
            restrictiveness of rules of origin determines the degree of
            preferences entailed in market opening commitments, shaping
            the bargaining incentives of FTAs and their eventual
            economic effects. Even though the number of FTAs in services
            has increased rapidly in recent years, hardly any research
            is available that can guide policymakers on the economic
            implications of different rules of origin. After outlining
            the key economic tradeoffs and options for rules of origin
            in services, the paper summarizes the main findings of a
            research project that has assessed the rules of origin
            question for five countries in the ASEAN region. For
            selected service subsectors and a number of criteria for
            rules or origin, simulation exercises evaluated which
            service providers would or would not be eligible for
            preferences negotiated under a FTA. Among other findings,
            the simulation results point to the binding nature of a
            domestic ownership or control requirement and, for the
            specific case of financial services, a requirement of incorporation.
The international financial
            integration of China and India
Three main features characterize the
            international financial integration of China and India.
            First, while only having a small global share of
            privately-held external assets and liabilities (with the
            exception of China's foreign direct investment
            liabilities), these countries are large holders of official
            reserves. Second, their international balance sheets are
            highly asymmetric: both are "short equity, long
            debt." Third, China and India have improved their net
            external positions over the past decade although, based on
            their income level, neoclassical models would predict them
            to be net borrowers. Domestic financial developments and
            policies seem essential in understanding these patterns of
            integration. These include financial liberalization and
            exchange rate policies, domestic financial sector policies,
            and the impact of financial reform on savings and investment
            rates. Changes in these factors will affect the
            international financial integration of China and India
            (through shifts in capital flows and asset and liability
            holdings) and, consequently, the international financial system.
Fungibility and the flypaper effect
            of project aid : micro-evidence for Vietnam
While most economists assume that aid is
            fungible, most aid donors behave as if it is not. The
            authors study recipient government responses to development
            project aid in the context of a specific World Bank-financed
            project. They estimate the impact of a rural road
            rehabilitation project in Vietnam on the kilometers of roads
            actually rehabilitated and built. Using local-level survey
            data collected for this purpose, the authors test whether
            the evidence supports the standard economic argument that
            there will be little or no impact on rural roads
            rehabilitated, given fungibility. They find evidence that,
            although project aid impacts on rehabilitated road
            kilometers were less than intended, more roads were built in
            project areas. The results suggest that there was
            fungibility within the sector, but that aid largely stuck to
            that sector.
Climate change, irrigation, and
            Israeli agriculture : will warming be harmful
The authors use a Ricardian model to
            test the relationship between annual net revenues and
            climate across Israeli farms. They find that it is important
            to include the amount of irrigation water available to each
            farm in order to measure the response of farms to climate.
            With irrigation water omitted, the model predicts that
            climate change is strictly beneficial. But with water
            included, the model predicts that only modest climate
            changes are beneficial, while drastic climate change in the
            long run will be harmful. Using the Atmospheric Oceanic
            Global Circulation Models scenarios, the authors show that
            farm net revenue is expected to increase by 16 percent in
            2020, while in 2100 farm net revenue is expected to drop by
            60-390 percent varying between the different scenarios.
            Although Israel has a relatively warm climate, a mild
            increase in temperature is beneficial due to the ability to
            supply international markets with farm products early in the
            season. The findings lead to the conclusion that securing
            water rights to the farmers and international trade
            agreements can be important policy measures to help farmers
            adapt to climate change.
What makes cities healthy
The benefits of good health to
            individuals and to society are strongly positive and
            improving the health of the poor is a key Millennium
            Development Goal. A typical health strategy advocated by
            some is increased public spending on health targeted to
            favor the poor and backed by foreign assistance, as well as
            by an international effort to perfect drugs and vaccines to
            ameliorate infectious diseases bedeviling the developing
            nations. But if the objective is better health outcomes at
            the least cost and a reduction in urban health inequity, the
            authors' research suggests that the four most potent
            policy interventions are: water and sanitation systems;
            urban land use and transport planning; effective primary
            care and health programs aimed at influencing diets and
            lifestyles; and education. The payoff from these four in
            terms of health outcomes dwarf the returns from new drugs
            and curative hospital-based medicine, although these
            certainly have their place in a modern urban health system.
            And the authors find that the resource requirements for
            successful health care policies are likely to depend on an
            acceleration of economic growth rates which increase
            household purchasing power and enlarge the pool of resources
            available to national and subnational governments to invest
            in health-related infrastructure and services. Thus, an
            acceleration of growth rates may be necessary to sustain a
            viable urban health strategy which is equitable and to
            ensure steady gains in health outcomes.
How "natural" are natural
            monopolies in the water supply and sewerage sector Case
            studies from developing and transition economies
Using data from the International
            Benchmarking NETwork database, the authors estimate measures
            of density and scale economies in the water industry in four
            countries (Brazil, Colombia, Moldova, and Vietnam) that
            differ substantially in economic development, piped water
            and sewerage coverage, and characteristics of the utilities
            operating in the different countries. They find evidence of
            economies of scale in Colombia, Moldova, and Vietnam,
            implying the existence of a natural monopoly. In Brazil the
            authors cannot reject the 0 hypothesis of constant returns
            to scale. They also find evidence of economies of customer
            density in Moldova and Vietnam. The results of this study
            show that the cost structure of the water and wastewater
            sector varies significantly between countries and within
            countries, and over time, which has implications for how to
            regulate the sector.
Migration and mental health :
            evidence from a natural experiment
People migrate to improve their
            well-being, whether through an expansion of economic and
            social opportunities or a reduction in persecution. Yet a
            large literature suggests that migration can be a stressful
            process, with potentially negative impacts on mental health,
            reducing the net benefits of migration. However, to truly
            understand the effect of migration on mental health one must
            compare the mental health of migrants to what their mental
            health would have been had they stayed in their home
            country. The existing literature is not able to do this and
            typically settles for comparing the mental health of
            migrants to that of natives in the destination country,
            which takes no account of any pre-existing differences
            between these groups. This paper overcomes the selection
            problems affecting previous studies of the effect of
            migration on mental health by examining a migrant lottery
            program. New Zealand allows a quota of Tongans to immigrate
            each year with a lottery used to choose among the excess
            number of applicants. A unique survey conducted by the
            authors in these two countries allows experimental estimates
            of the mental health effects of migration to be obtained by
            comparing the mental health of migrants who were successful
            applicants in the lottery to the mental health of those who
            applied to migrate under the quota, but whose names were not
            drawn in the lottery. Migration is found to lead to
            improvements in mental health, particularly for women and
            those with poor mental health in their home country.
Adult mortality and children's
            transition into marriage
Adult mortality due to HIV/AIDS and
            other diseases is posited to affect children through a
            number of pathways. On top of health and education outcomes,
            adult mortality can have significant effects on children by
            influencing demographic outcomes including the timing of
            marriage. The authors examine marriage outcomes for a sample
            of children interviewed in Tanzania in the early 1990s and
            re-interviewed in 2004. They find that while girls who
            became paternal orphans married at significantly younger
            ages, orphanhood had little effect on boys. On the other
            hand, non-parental deaths in the household affect the timing
            of marriage for boys
A land of milk and honey with
            streets paved with gold : do emigrants have over-optimistic
            expectations about incomes abroad
Millions of people emigrate every year
            in search of better economic and social opportunities.
            Anecdotal evidence suggests that emigrants may have
            over-optimistic expectations about the incomes they can earn
            abroad, resulting in excessive migration pressure, and in
            disappointment among those who do migrate. Yet there is
            almost no statistical evidence on how accurately these
            emigrants predict the incomes that they will earn working
            abroad. In this paper the authors combine a natural
            emigration experiment with unique survey data on would-be
            emigrants' probabilistic expectations about employment
            and incomes in the migration destination. Their procedure
            enables them to obtain moments and quantiles of the
            subjective distribution of expected earnings in the
            destination country. The authors find a significant
            underestimation of both unconditional and conditional labor
            earnings at all points in the distribution. This
            underestimation appears driven in part by potential migrants
            placing too much weight on the negative employment
            experiences of some migrants, and by inaccurate information
            flows from extended family, who may be trying to moderate
            remittance demands by understating incomes.
Do remittances have a flip side A
            general equilibrium analysis of remittances, labor supply
            responses, and policy options for Jamaica
Econometric analysis has established a
            negative relationship between labor supply and remittances
            in Jamaica. The authors incorporate this ex-post evidence in
            a general equilibrium model to investigate economywide
            effects of increased remittance inflows. In this model,
            remittances reduce labor force participation by increasing
            the reservation wages of recipients. This exacerbates the
            real exchange rate appreciation, hurting Jamaica's
            export base and small manufacturing import-competing sector.
            Within the narrow margins of maneuver of a highly indebted
            government, the authors show that a revenue-neutral policy
            response of a simultaneous reduction in payroll taxes and
            increase in sales taxes can effectively counteract these
            potentially negative effects of remittances.