Cross Country Income Differences and the Distinction between Cognitive and Non-Cognitive Human Capital

The quality of a countryís educational infrastructure is a crucial determinant
of economic well-being. Therefore, the comparisons of the relative strength and
weakness of educational systems across countries are critical for both academic research and policy-making. A common approach measures the comparative quality
of educational systems directly using international test scores. Aspects of educational quality that are ill-measured by exams, however, are neglected in such
analyses. In this paper, we develop a general equilibrium framework that allow
educational outcomes to vary in the extent to which they are readily quantified on
exams. Our framework allows inference along multiple dimensions of educational
quality and provides a method for aggregating over these dimensions to construct a single measure of institutional quality. Many countries that score well on international exams fair poorly according to our measure. Our comparative static
results suggest important tradeo§s across eductional dimensions, and spell out the
implications of educational-institution qualities for aggregate output.