LAUSR

The long run prosperity of nations is directly related to the skills of their population. The relevant cognitive skills — the “knowledge capital” of a nation — can be measured well by international math and science tests. The consideration of knowledge capital can completely account for the Latin American growth puzzle and the East Asian growth miracle. Several analyses suggest that the relationship depicts a causal effect of skills. According to the evidence, an understanding of long run growth ultimately has to rest on the knowledge capital of nations. To further long run prosperity, policies should focus on education. Effective education systems align incentives with achievement through better educational practices such as external exams, school autonomy, choice and competition.