Can Institutions or Education Explain World Poverty? An Augmented Solow Model Provides Some Insights

This article presents revised estimates of the external rates of return on investment in schooling provided in “Schooling and National Income: How Large Are the Externalities?” The analysis is based on data for the same set of countries, but it incorporates methodological improvements that yield lower estimates of these rates. The revised marginal external rates of return range from four percent in the highest-income countries to about 35 percent in the lowest-income countries. These rates are about half the private rates of return in high-income countries and about double the private rates in the lowest-income countries.