Cognitive capital, governance, and the wealth of nations

Kodila-Tedika, Oasis and Rindermann, Heiner and Christainsen, Gregory (2014): Cognitive capital, governance, and the wealth of nations.

Abstract

Good governance or “government effectiveness” (per the World Bank) is seen as a critical factor for the wealth of nations insofar as it shapes political and economic institutions and affects overall economic performance. The quality of governance, in turn, depends on the attributes of the people involved. In an analysis based on international data, government effectiveness was related to the cognitive human capital of the society as a whole, of the intellectual class, and of leading politicians. The importance of cognitive capital was reflected in the rate of innovation, the degree of economic freedom, and country competitiveness, all of which were found to have an impact on the level of productivity (GDP per capita) and wealth (per adult). Correlation, regression, and path analyses involving N=98 to 201 countries showed that government effectiveness had a very strong impact on productivity and wealth (total standardized effects of β=.56-.68). The intellectual class’s cognitive competence, seen as background factor and indicated by scores for the top 5 percent of the population on PISA, TIMSS and PIRLS, also had a strong impact (β=.50-.54). Cross-lagged panel designs were used to establish causal directions, including backward effects from economic freedom and wealth on governance. The use of further controls showed no independent impacts on per capita wealth coming from geographical variables or natural resource rents. Finally, we discuss background factors and ways in which governance might be improved.

• Item Type: MPRA Paper
• Language: English
• Keywords: government effectiveness, human capital, cognitive ability, intelligence, economic freedom, innovation, competitiveness
• Subjects: D - Microeconomics > D7 - Analysis of Collective Decision-Making > D73 - Bureaucracy ; Administrative Processes in Public Organizations ; Corruption; I - Health, Education, and Welfare > I2 - Education and Research Institutions; I - Health, Education, and Welfare > I2 - Education and Research Institutions > I20 - General; O - Economic Development, Innovation, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity > O43 - Institutions and Growth; O - Economic Development, Innovation, Technological Change, and Growth > O5 - Economywide Country Studies > O55 - Africa

References

Altinok, N., Diebolt, C. & De Meulemeester, J.-L. (2013). A new international database on education quality: 1965-2010. Metz: Working Papers, Association Francaise de Cliometrie (AFC), No. 3, www.cliometrie.org/images/wp/AFC_WP_03-2013.pdf.

Armstrong, J. S. (2007). Significance tests harm progress in forecasting. International Journal of Forecasting, 23, 321-327.

Aristotle (2009/-330). Nicomachean ethics. New York: Oxford University Press.

Ashraf, Q. & Galor, O. (2013). The out of Africa hypothesis, human genetic diversity, and comparative economic development American Economic Review, 103, 1-46.

Becker, G. S. (1993/1964). Human capital: A theoretical and empirical analysis with special reference to education. Chicago: University of Chicago Press.

Belasen, A. R. & Hafer, R. W. (2012). Well-being and economic freedom: Evidence from the States. Intelligence, 40, 306-316.

Besley, T. & Reynal-Querol, M. (2011). Do democracies select more educated leaders? American Political Science Review, 105, 552-566.

Caplan, B. & Miller, S. C. (2010). Intelligence makes people think like economists: Evidence from the General Social Survey. Intelligence, 38, 636-647.

Chetty, R., Friedman, J. N., Hilger, N., Saez, E., Schanzenbach, D. & Yagan, D. (2011). How does your kindergarten classroom affect your earnings? Evidence from project STAR. Quarterly Journal of Economics, 126, 1593-1660.

Christainsen, G. B. (2013). IQ and the wealth of nations: How much reverse causality? Intelligence, 41, 688-698.

Cohen, J. (1994). The earth is round (p<.05). American Psychologist, 49, 997-1003.

Corden, W. M. & Neary, J. P. (1982). Booming sector and de-industrialisation in a small open economy. The Economic Journal, 92, 825-848.

Coyle, Th. R. & Rindermann, H. (2013). Spearman’s Law of Diminishing Returns and national ability. Personality and Individual Differences, 55, 406-410.

Credit Suisse Research Institute (2013). Global wealth databook 2013. Zurich: Credit Suisse.

de Haan, J., Lundstrom, S. & Sturm, J-E. (2006). Market-oriented institutions and policies and economic growth: A critical survey. Journal of Economic Surveys, 20, 157-191.

Dutta, S. & Lanvin, B. (2013). The global innovation index 2013. The local dynamics of innovation. Ithaca: Cornell University, World Intellectual Property Organization (WIPO). Retrieved from www.globalinnovationindex.org/content.aspx?page=gii-full-report-2013.

Gigerenzer, G. (2004). Mindless statistics. Journal of Socio-Economics, 33, 587-606.

Glaeser, E. L., La Porta, R., Lopez-de-Silanes, F. & Shleifer, A. (2004). Do institutions cause growth? Journal of Economic Growth, 9, 271-303.

Gottfredson, L. S. (2003). g, jobs and life. In H. Nyborg (Ed.), The scientific study of general intelligence. Tribute to Arthur R. Jensen (pp. 293-342). Oxford: Pergamon.

Gwartney, J., Lawson, R. & Hall, J. (2013). Economic freedom of the world. 2013 annual report. Vancouver: Fraser Institute. Retrieved from www.freetheworld.com/2013/EFW2013-complete.pdf.

Hanushek, E. A. & Woessmann, L. (2008). The role of cognitive skills in economic development. Journal of Economic Literature, 46, 607-668.

Hanushek, E. A. & Woessmann, L. (2009). Do better schools lead to more growth? Bonn: IZA DP No. 4575.

Harrison, L. E. (2006). The central liberal truth: How politics can change a culture and save it from itself. New York: Oxford University Press.

Heckman, J. J. (2000). Policies to foster human capital. Research in Economics, 54, 3-56.

Heston, A., Summers, R. & Aten, B. (2012). Penn World Table Version 7.1. Philadelphia: University of Pennsylvania, Center for International Comparisons of Production, Income and Prices. Retrieved from https://pwt.sas.upenn.edu/php_site/pwt_index.php.

Hoppe, H.-H. (2001). Democracy: The god that failed. Rutgers: Transaction.

Hunt, E. (2012). What makes nations intelligent? Perspectives on Psychological Science, 7, 284-306.

Irwing, P. & Lynn, R. (2006). The relation between childhood IQ and income in middle age. Journal of Social Political and Economic Studies, 31, 191-196.

Jones, G. (2008). Are smarter groups more cooperative? Evidence from prisoner's dilemma experiments, 1959-2003 Journal of Economic Behavior & Organization, 68, 489-497.

Jones, G. (2012). Cognitive skill and technology diffusion: An empirical test. Economic Systems, 36, 444-460.

Jones, G. & Potrafke, N. (2014). Human capital and national institutional quality: Are TIMMS, PISA, and national average IQ robust predictors? Intelligence, 46, 148-155.

Kapur, D. & McHale, J. (2005). Give us your best and brightest: The global hunt for talent and its impact on the developing world. Washington: Center for Global Development.

Kaufmann, D. (2003). Rethinking governance: Empirical lessons challenge orthodoxy. Washington: World Bank. Retrieved from http://siteresources.worldbank.org/INTWBIGOVANTCOR/Resources/rethink_gov_stanford.pdf.

Kaufmann, D., Kraay, A. & Mastruzzi, M. (2010). The worldwide governance indicators. Methodology and analytical issues. Washington: The World Bank, Policy Research Working Paper 5430. Updated: The Worldwide Governance Indicators, 2012 Update. Retrieved from http://info.worldbank.org/governance/wgi/wgidataset.xlsx.

Kodila-Tedika, O. (2013, forthcoming). Governance and intelligence: Empirical analysis from African data. Journal of African Development.

Kodila-Tedika, O. & Kalonda-Kanyama, I. (2012). Quality of institutions: Does intelligence matter? Economic Research Southern Africa: Working Papers 308.

Kodila-Tedika, O. & Bolito-Losembe, R. 2014. Poverty and Intelligence: Evidence using Quantile Regression, Economic Research Guardian, vol. 4(1), pages 25-32, June.

Komlos, J. & Kriwy, P. (2003). The biological standard of living in the two Germanies. German Economic Review, 4, 493-507.

Kramer, J. (2009). General mental ability and occupational success in Germany. Psychologische Rundschau, 60, 82-98.

Kuncel, N. R. & Hezlett, S. A. (2010). Fact and fiction in cognitive ability testing for admissions and hiring decisions. Current Directions in Psychological Science, 19, 339-345.

Lynn, R. & Vanhanen, T. (2012a). Intelligence. A unifying construct for the social sciences. London: Ulster Institute for Social Research.

Lynn, R. & Vanhanen, T. (2012b). National IQs: A review of their educational, cognitive, economic, political, demographic, sociological, epidemiological, geographic and climatic correlates. Intelligence, 40, 226-234.

Maas, H. L. J. v. d., Dolan, C. V., Grasman, R. P. P. P., Wicherts, J. M., Huizenga, H. M. & Raijmakers, M. E. J. (2006). A dynamical model of general intelligence: The positive manifold of intelligence by mutualism. Psychological Review, 113, 842-861.

Meisenberg, G. & Woodley, M. A. (2013). Global behavioral variation: A test of differential-K. Personality and Individual Differences, 55, 273-278.

Meisenberg, G., Lawless, E., Lambert, E. & Newton, A. (2006). The social ecology of intelligence on a Caribbean island. Mankind Quarterly, 46, 395-433.

Miller, T., Holmes, K. R. & Feulner, E. J. (2013). 2013 index of economic freedom. Washington: The Heritage Foundation. Retrieved from www.heritage.org/index/pdf/2013/book/index_2013.pdf.

Mises, L. v. (1996/1927). Liberalism: The classical tradition. New York: Cobden Press.

Muthen, L. K. (2009). Blog entry on Mplus, January 28, 2009. Retrieved from www.statmodel.com/discussion/messages/8/3908.html?1366413074.

Piffer, D. (2013). Correlation of the COMT Val158Met polymorphism with latitude and a hunter-gather lifestyle suggests culture-gene coevolution and selective pressure on cognition genes due to climate. Anthropological Science, 121, 161-171.

Potrafke, N. (2012). Intelligence and corruption. Economics Letters, 114, 109-112.

Pritchett, L. & Viarengo, M. (2009). Producing superstars for the economic mundial: The Mexican predicament with quality of education. In R. Hausmann, E. L. Austin & I. Mia (Eds.), The Mexico competitiveness report 2009 (pp. 71-89). Genf/Harvard: World Economic Forum.

Putterman, L. & Weil, D. (2010). Post-1500 population flows and the long run determinants of economic growth and inequality. Quarterly Journal of Economics, 125, 1627-1682.

Rindermann, H. (2012). Intellectual classes, technological progress and economic development: The rise of cognitive capitalism. Personality and Individual Differences, 53, 108-113.

Rindermann, H. (2013). African cognitive ability: Research, results, divergences and recommendations. Personality and Individual Differences, 55, 229-233.

Rindermann, H. (2014/in preperation). Cognitive capitalism: Human capital and the wealth of nations. Cambridge: Cambridge University Press.

Rindermann, H., Baumeister, A. E. E. & Gröper, A. (2013). Cognitive abilities of Emirati and German engineering university students. Journal of Biosocial Science. DOI: 10.1017/S0021932013000266

Rindermann, H. & Heller, K. A. (2005). The benefit of gifted classes and talent schools for developing students’ competences and enhancing academic self-concept.

Zeitschrift für Pädagogische Psychologie, 19, 133-136. Rindermann, H., Hoang, Q. S. N. & Baumeister, A. E. E. (2013). Cognitive ability, parenting and instruction in Vietnam and Germany. Intelligence, 41, 366-377.

Rindermann, H. & te Nijenhuis, J. (2012). Intelligence in Bali – A case study on estimating mean IQ for a population using various corrections based on theory and empirical findings. Intelligence, 40, 395-400.

Rindermann, H., Flores-Mendoza, C. & Mansur-Alves, M. (2010). Reciprocal effects between fluid and crystallized intelligence and their dependence on parents’ socioeconomic status and education. Learning and Individual Differences, 20, 544-548.

Rindermann, H., Sailer, M., & Thompson, J. (2009). The impact of smart fractions, cognitive ability of politicians and average competence of peoples on social development. Talent Development and Excellence, 1, 3-25.

Rindermann, H., Woodley, M. A. & Stratford, J. (2012). Haplogroups as evolutionary markers of cognitive ability. Intelligence, 40, 362-375.

Robertson, K. F., Smeets, S., Lubinski, D., & Benbow, C. P. (2010). Beyond the threshold hypothesis. Current Directions in Psychological Science, 19, 346-351.

Sala-i-Martin, X. (1997). I just ran two million regressions. American Economic Review, 87, 178-183.

Salgado, J. F., Anderson, N., Moscoso, S., Bertua, C., De Fruyt, F. & Rolland, J. P. (2003). A meta-analytic study of general mental ability validity for different occupations in the European Community. Journal of Applied Psychology, 88, 1068-1081.

Schmidt, F. L. (2009). Select on intelligence. In E. A. Locke (Ed.), Handbook of principles of organizational behavior (pp. 3-17). Oxford: Blackwell.

Schmidt, F. L. (2012). Cognitive tests used in selection can have content validity as well as criterion validity: A broader research review and implications for practice. International Journal of Selection and Assessment, 20, 1-13.

Schmidt, F. L. & Hunter, J. E. (1998). The validity and utility of selection methods in personnel psychology: Practical and theoretical implications of 85 years of research findings. Psychological Bulletin, 124, 262-274.

Schwab, K. (2013). The global competitiveness report 2013-2014. Geneva: World Economic Forum. Retrieved from www3.weforum.org/docs/WEF_GlobalCompetitivenessReport_2013-14.pdf.

Schwekendiek, D. & Pak, S. (2009). Recent growth of children in the two Koreas: A meta-analysis. Economics and Human Biology, 7, 109-112.

Shamosh, N. A. & Gray, J. R. (2008). Delay discounting and intelligence: A meta-analysis. Intelligence, 36, 289-305.

Simonton, D. K. (2006). Presidential IQ, openness, intellectual brilliance, and leadership: Estimates and correlations for 42 US chief executives. Political Psychology, 27, 511-526.

Spolaore, E. & Wacziarg, R. (2013). How deep are the roots of economic development? Journal of Economic Literature, 51, 325-369.

Süß [Suess], H.-M. (1999). Intelligence and complex problem solving. Psychologische Rundschau, 50, 220-228.

Ura, K., Alkire, S., Zangmo, T. & Wangdi, K. (2012). An extensive analysis of GNH index. Thimphu: The Centre for Bhutan Studies.

Vanhanen, T. (2011). IQ and international wellbeing indexes. Journal of Social, Political and Economic Studies, 36, 80-89.

Wai, J. (2013). Investigating America’s elite: Cognitive ability, education, and sex differences. Intelligence, 41, 203-211.

Weber, M. (2008/1904). The Protestant ethic and the spirit of capitalism. New York: Oxford University Press.

World Bank (2011). The changing wealth of nations: Measuring sustainable development in the new millennium. Washington. Data retrieved November 5, 2013 from http://api.worldbank.org/v2/en/indicator/ny.gdp.totl.rt.zs?downloadformat=excel.

Yew, L. K. (2000). From Third World to First. The Singapore story 1965-2000. Singapore and the Asian economic boom. New York: Harper Collins.