Cognitive skills, innovation and technology diffusion

This article presents new international estimates of human capital for the period 1970-2003. The new latent index is used to re-examine the Benhabib and Spiegel (2005) model of technology diffusion in a horse-race with the competing indicators of Barro and Lee (2010) and Hanushek and Wößmann (2009). Analysis employs cross-section and panel econometrics, extends beyond the Cobb-Douglas technology, and deals with endogeneity bias. Robust evidence confirms the significance of cognitive skills as a driver of innovation and diffusion. Although there is substantial diversity, the new human capital index has declined in many countries in Africa and the OECD.

► A new latent index of human capital is developed for 70 nations, 1970-2003. ► Three production functions are used to test the Benhabib and Spiegel (2005) model. ► Cognitive skills are important for both innovation and technology diffusion. ► Human capital has declined in Africa and many OECD countries but has risen in Asia. ► Only one-third of poor countries have managed to escape the poverty trap.