Cognitive capital, governance, and the wealth of nations

Oasis Kodila-Tedika, Heiner Rindermann and Gregory Christainsen

MPRA Paper from University Library of Munich, Germany

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.

Keywords: government effectiveness; human capital; cognitive ability; intelligence; economic freedom; innovation; competitiveness (search for similar items in EconPapers)
JEL-codes: D73 I2 I20 O43 O55 (search for similar items in EconPapers)
Date: 2014-07-25
New Economics Papers: this item is included in nep-cse, nep-gro and nep-neu
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (31)

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