also include primary, secondary and tertiary education into the same equation in order to assess their joint impact on growth. However, due to strong collinearity, the estimation only supports the inclusion of one education level.<sup>24</sup> As can be appreciated from the test statistics the regressions perform quite well. Notice that the estimate for primary education includes a time trend starting in 1985, the year of Guatemala’s transition to civilian rule. The inclusion of the trend variable was motivated to avoid serial correlation in the residuals, but does not have an impact on the magnitude of coefficients.

Table 6 presents both OLS and IV estimates. The endogeneity problem seems to be more pronounced for primary education, and in particular for physical capital. However, the qualitative results do not vary substantially. In all specifications the schooling variables are highly significant and positively correlated with growth. Interestingly, the significance levels increase with secondary and tertiary education. Regarding the long-run elasticities, the accumulation of primary schooling appears to be most important for growth, followed by secondary and tertiary education. This finding should _not_ be interpreted as implying that other levels are unimportant. This is particularly true given the tight connections between the various forms of educational capital and the retrospective character of the empirics. Nevertheless, the evidence is in line with the limited cross-country studies on this topic. Recall that Gemmel (1996), Petrakis and Stamatakis (2002) and Papageorgiou (2003) plausibly suggest that the importance of post-primary education increases with the level of development. Similarly, de Ferranti et al. (2002) argue that in countries classified as adopters, such as Guatemala, policies should first focus on a critical threshold level of primary schooling, coupled with open trade policies. The intuition is here that different stages of technological transition require distinct policy priorities. A sufficient coverage _and_ quality of primary education are regarded as the minimum prerequisite to adopt technologies. By contrast, in countries where basic skill requirements are fulfilled and firms are making significant adaptations or innovations, the creation of more specialized skills ought to be the priority. In addition, the results here partially confirm the earlier micro-level evidence for Guatemala.<sup>25</sup>

- 24 In principle, the inclusion of a time trend for 1999 and an interaction term for secondary and tertiary schooling would allow incorporating all three levels of education at a time. Tentatively, such an exercise yields similar qualitative results on the impact of each level of education on growth—albeit primary schooling becomes insignificant. In addition, due to the multicollinearity problem, this specification was found to be rather sensitive and performs less well than the results displayed in Table 6.

- 25 For Guatemala, Psacharopoulos and others have extensively investigated the returns to schooling, sometimes by level of education. Such exercises are summarized in Psacharopoulos and Patrinos (2002), Haeussler (1993) and World Bank (1995). The studies generally report high private returns to primary schooling, but are merely based on ENS (1989) or earlier data, and typically do not care about sample selection bias.

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