NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Knowledge Capital and Aggregate Income Differences: Development Accounting for U.S. States

Eric A. Hanushek, Jens Ruhose, Ludger Woessmann

NBER Working Paper No. 21295
Issued in June 2015, Revised in February 2017
NBER Program(s):Children, Development Economics, Economics of Education, Economic Fluctuations and Growth, Labor Studies, Public Economics

Improvement in human capital is often presumed important for state economic development, but little research links better education to state incomes. We develop detailed measures of worker skills in each state that incorporate cognitive skills from state- and country-of-origin achievement tests. These new measures of knowledge capital permit development accounting analyses calibrated with standard production parameters. Differences in knowledge capital account for 20-30 percent of the state variation in per-capita GDP, with roughly even contributions by school attainment and cognitive skills. Similar results emerge from growth accounting analyses. These estimates support school improvement as a strategy for state economic development.

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Document Object Identifier (DOI): 10.3386/w21295

Published: Eric A. Hanushek & Jens Ruhose & Ludger Woessmann, 2017. "Knowledge Capital and Aggregate Income Differences: Development Accounting for US States," American Economic Journal: Macroeconomics, vol 9(4), pages 184-224. citation courtesy of

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