Catching Up in Education in the Economic Catch‐up of Japan with the United States, 1890–1990

Abstract

I. The Problem and the Approach The record of “modern economic growth” a la Simon Kuznets shows that sustained increases in real national income in advanced market economies depend predominantly on improved efficiency as measured by the growth of total factor productivity (TFP). Real national income is less dependent on increases in conventional inputs, that is, physical capital and labor in personhours. With the strong advocacy of economists such as Theodore Schultz, it has been established that investment in education is a major source of growth in TFP and, hence, national income. Estimations of the contribution of TFP to economic growth in advanced market economies have hitherto been limited to periods after these economies reached a stage of relatively high income. However, recent extensions of growth accounting analysis for earlier stages of industrialization in the United States as well as in Japan show that the contribution of TFP growth to national income growth was relatively minor. These historical findings are also consistent with other studies, indicating that the contribution of TFP growth to economic growth was small in comparison to the contribution of physical capital accumulation in newly industrialized economies (NIEs) in recent decades. Such observations suggest that the role of education may be different between the earlier and the later stages of modern economic growth. The validity of this hypothesis is critical for drawing relevant policy implications for developing economies from the historical experiences of developed economies. Nevertheless, a comprehensive analysis on the role of education covering the entire span of modern economic growth has been stymied by the sheer