It education and economic growth: Evidence from cross-country regressions

That the information technology (IT) can importantly influence the domestic economy is now widely recognized.  The ‘IT-led growth’ suggests that investments in IT industries generally enhance labor productivity and hence it contributes significantly to the growth of industrialized countries.  Many studies in the literature use the amount of investment in computer hardware as a separate form of physical capital within an aggregate production function framework, which is a sharp contrast to our use of computer proficiency as a quality measure of human capital.

More specifically, internet usage rates are used as a measure of computer proficiency of labor force.  A rapid increase of computer-related technology in recent years makes the internet be a central force of technological development, especially in many developed countries.  It is thus important for scientists and engineers to excel not only in math and science, but also in computer science.  Furthermore, an economy with a higher percentage of labor force that can utilize an internet tends to learn advanced technologies overseas faster than other countries.  Thus, an average percentage of internet users across countries is employed here as a quality measure of human capital alongside Hanushek and Kimko’s (2000) index of math and science skills.  Litan and Rivlin (2001) described the benefits of the internet, as well as potential cost savings, in an industry level.  No studies have discussed the role of an internet in the growth of nations.

Regression results show that internet usage rates, a proxy for different levels of computer proficiency across countries, have a positive and significant effect on real GDP growth.  The estimated growth effect remains statistically significant when other variables are included in the model.  The quantity measure of schooling is also found to be significantly and positively related to GDP growth.  The quality measures of human capital have even greater impacts on GDP growth.  In particular, the growth effect of computer skills is even larger than the effect of math and science skills if one standard deviation is increased in each variable.  The results are, in general, robust across different model specifications.