Mediators of the IQ effect on economic growth

The paper investigates the relationships of cognitive human capital (a.k.a. intelligence) with growth in per capita GDP between 1975 and 2009. The following results were obtained: (1) Measures of IQ and school achievement, but not length of schooling, predict economic growth; (2) IQ and school achievement are highly correlated, and can be combined into a composite measure of intelligence; (3) The combination of high intelligence and low initial per capita income is the best predictor of economic growth for both rich and poor countries; (4) Some of the effect of intelligence on economic growth is mediated by good governance; (5) Other mediators of the intelligence effect include gross domestic savings and measures of health, as well as reduced social pathologies (crime, teenage pregnancy) in advanced economies and technological sophistication and lower fertility rates in less developed countries. The results are interpreted as showing that rising intelligence, known as the Flynn effect, has been a major driver of economic growth during the last decades. Introduction Material wealth is considered desirable by most people. With desire for wealth rarely lacking, it is reasonable to expect that the economic success of individuals, and in consequence the economic growth of nations, is limited to some significant extent by the required cognitive skills (a.k.a. intelligence): the ability to understand the workings of the economy, and to take advantage of opportunities for personal enrichment. Based on the belief in the importance of cognitive skills, modern nations have established vast educational systems in an effort to raise children’s intelligence. Until recently, the scientific investigation of the relationship between “human capital” and economic growth has focused on measures of schooling such as average years in school and the proportion of children achieving higher educational degrees. However, what is expected to be important are the cognitive skills that children acquire in school and out of school, not their exposure to formal schooling or the diplomas they get awarded. Therefore the emphasis is rapidly shifting away from measures of exposure to formal education and towards the direct assessment of cognitive outcomes in the form of knowledge and reasoning skills. This paper investigates two country-level measures of cognitive skills: average IQ measured by intelligence tests administered to representative samples, and results of international assessments of scholastic achievement such as PISA and TIMSS. After verifying that these