How Cognitive Abilities Lead to Economic Growth

Most of us understand that knowledge and skills are important for economic development. What we may not understand is how this is measured across varying countries to determine if such growth is based in this human capital enhancement. A study by Hanushek & Woessmann (2012) found that cognitive skills play a causal relationship in economic growth. Their focus was based on averages of math and science scores from 1964-2003 in different countries. 

There are two primary ways to measure cognitive skills on a macro-economic level. Time in education focuses on the amount of years people went to school while cognitive skills focus on the actual skills that people learn. The later measurements are more difficult to obtain as each country measures these concepts differently and measurements cannot be easily compared.  

Skill is not simply an additive process but also a multiplier process. Basic skills lead to higher levels of skill development later. In other words, “skill begets skill through a multiplier process” (Cunha et. al. 2006, p. 698). The skills learned at different times of one’s life make their way into varying skill batteries as various opportunities rise to use those skills. The person can move to higher skill levels through past learning.

The general premise is that the right education and skills offers a better catalyst for economic growth than when these elements are not present. Human capital increases the stream of new ideas that produce a higher rate of technological development (Romer, 1990). That technological development raises market value and per capita production rates leading to higher organizational and national wealth. 

Previous studies have indicated that U.S. immigrants with high cognitive skills also earned more money (Hanushek and Kimko, 2000) when compared to those with low cognitive skills. These skills help to create greater skill development that can be used to generate wealth and improve per capita Gross Domestic Product (GDP). That GDP then makes its way into the Gross National Product (GNP) which is a marker of a countries growth. 

When skill and education align in the market it can have an enormous impact on development. According to Hanushek & Woessman (2011) improvements in these areas can raise GDP 6.2% for up to 80 years. Each worker becomes more productive and able to master the skills needed to take on new roles and positions within the economy thereby fostering economic flexibility.

The researchers found that cognitive abilities in endogenous growth models improve upon the innovative and adaptive abilities of a nation. As more people engage in the economic growth engine, and their personal development, the more growth expected. Growth can change through economic shifts expanding growth in some countries until a new homeostasis is found. Growth rates would then return to normal but at a higher income rate. 

Cunha, F.,et. al. (2006). Interpreting the evidence on life cycle skill formation. In E. A. Hanushek & F. Welch (Eds.), Handbook of the Economics of Education. (pp. 697–812). Amsterdam: Elsevier.

Hanushek, E. & Woessman, L. (2012). Do better schools lead to more growth? Cognitive skills, economic outcomes and causation. Journal of Economic Growth, 17 (4).

Hanushek, E. A., & Kimko, D. D. (2000). Schooling, labor force quality, and the growth of nations. American Economic Review, 90(5), 1184–1208.

Hanushek, E. A., & Woessmann, L. (2008). The role of cognitive skills in economic development. Journal of Economic Literature, 46(3), 607–668.

Hanushek, E. A., & Woessmann, L. (2011b). How much do educational outcomes matter in OECD countries?. Economic Policy, 26(67), 427–491.

Romer, P. (1990). Endogenous technological change. Journal of Political Economy 99(5), pt. II: S71–S102.

International Macro-Marketing Encourages National Development

Ferry Landing Marketplace-Coronado

Marketing and economic development are two concepts that are intertwined. According to a paper by Low and Dang (2012), international marketing is a major factor in raising economic development in a country. The development of society through producing and selling relevant products worldwide is based deeply in prior literature dating back over a century. Without marketing it will be difficult to grow the wealth of a country.

The concept of international marketing can be seen as macro-marketing; or marketing on a large scale. Macro-marketing is related to marketing systems, marketing systems impact on society, and societies influence on marketing systems (Hunt, 1977).  As marketing is a national exchanged and international marketing is an international exchange, development of society is directly impacted by the quality and value of goods and services flowing through these exchanges.

The purpose of international marketing is to satisfy needs worldwide. When countries can align their economic systems to produce products and services that will lead to wealth growth and quality of life development they have effectively competed on the international market. If wealth is moving overseas and standards of living are lowering then they are not effectively competing. The individual arguments matter little in this debate if they produce the same results.

International marketing isn’t a standalone process and relies on the three subsystems of physical distribution systems, financial systems, and communicative systems (Drucker, 1958). Companies must have connections to distribution networks; they need a medium of exchange and financial transference, and the ability to manage their companies/distributors through communicative systems. Customers must be aware of products, have a mechanism to purchase the products and receive the products.

The products are not bought and distributed without first being developed. The concepts of entrepreneurship, standards, proper management and stimulating demand can increase the market size. As these elements come together higher levels of productivity and efficiency in product development rise thereby drawing in more wealth (Cundiff & Hilger, 1980).

Ricardo’s theory of comparative advantage indicates that companies that can produce products cheaper in one country can trade with other countries with different competencies (Ricardo, 1817).  Labor, capital, and land are used to develop competencies in market production. Today’s international marketplace requires highly competent labor as resource extraction is likely an advantage of emerging nations.   

The authors argue that economic development requires the right national environment. It is important for nations to cluster industries and create local spillover effects that improve upon skilled labor, capital investments, and infrastructure. International marketing links a country to the international market and helps to encourage adjustments within society to meet these challenges. There is a growing need among developed nations to adjust their governmental management to better reflect the needs of the global marketplace.

The report helps us understand that when products are designed and produced to a world market economic growth can occur. Firms must align their internal resources to the world environment in order to be successful. Competencies lay in using intellectual abilities and highly skilled labor to turn lower value commodities to higher value products that have wide appeal and generate significant wealth. Underdeveloped nations will have a hard time copying the products and services developed through higher level nations when the highest human capital is developed that matches available resources.

Cundiff, E. W. and Hilger, M. T. (1980). Marketing and the Production-Consumption  Thesis in Economic Development. InG Fisk, R. W. Nason & P. D. White (Eds.), Macromarketing: evolution of Thought (pp. 177-186). Boulder: University of Colorado, Business Research Division.

Hunt, S.D. (1977). The three dichotomies model of marketing: An elaboration of issues. In C. C. Slater (Ed.), Macromarketing: Distributive Processes from a Societal Perspective (pp. 52-56). Boulder,  CO:  Business  Research  Division,  University  of  Colorado.

Low, S. & Dang, T. (2013). Role of marketing and construction in economic development: lessons for emerging economies. IBA Business Review, 7 (1).

Ricardo, D. (1817). On theprinciples ofpolitical ecOIIOfl9\ and taxation. London: J. M'Creepy.

A Culture of Economic Engagement Creates National Growth

Culture and economics not often something that are seen together as its smacks of elitism. However, culture as a belief system has a noticeable impact on societal behavior and the everyday choices people make that contribute to economic development. A paper by Svetlana Overbaugh, indicates that culture should be a major consideration in the determination of countries that are ripe for international investment and growth (2013).

Falling trade barriers, communication improvements, and shipping improvements have opened the markets to major change. Those nations that are likely to succeed have the right culture and infrastructure to capitalize on this change. As Asian countries zoom ahead in growth, Americans and Western European nations continue to lose market share. The time for regeneration based upon basic cultural principles may be needed to reclaim the marketplace.

The degree of economic freedom and the pace of a country’s growth influence its economic competitiveness (Johnson & Lenartowicz, 1998). The Organization on Economic Cooperation and Development (OECD) defines global competitiveness as the ability of a country to produce new products that can successfully compete against other countries in the global marketplace (2011). Economic growth becomes a process of turning out the new and unique.

If we travel back in time we can find that Adam Smith (1776) believed that self-interested actions of many market participants leads to efficient allocation of resources that can result in higher productivity and economic growth. Other ancient theorists such as Tucker believed that countries become rich due to the desire to develop new knowledge, learn, and apply this knowledge in new ways (1776). Thus, economic development is rooted in the cultural underpinnings that afford opportunities to develop new knowledge and use that knowledge to enhance international sales and profits.

The author relied on Hofstede’s Cultural Dimensions Model and economic activity to determine competitiveness.  The six cultural dimensions of power distance, individualism/collectivism, masculinity/ femininity, short/long-term thinking, and indulgence/restraint were part of the evaluation process. They are important because once the cultural underpinnings have been established they reinforce social rules and norms on society.

Even though the study focused on smaller post-communist countries, they also offer a glimpse into why some countries are growing and why some are not and this has broad implications. The Author found that since national culture impacts every aspect of social life it is necessary to foster innovativeness and human development within that culture to foster economic activity. It is the choices of many that make a viable system.

The author found that two cultural attributes of power distance and uncertainty avoidance have the greatest influence on growth. When power-distance relationships are low all members of society are encouraged to work and grow while low uncertainty avoidance encourages a higher entrepreneurship stance that takes chances on new products and services. Growth is through egalitarian and supportive risk-taking perspectives.

Beyond this report, we can see that those cultures that influence norms on productive innovativeness and human development also see higher levels of GNP development. These cultural attributes are based in the way people think about their place in the economic system. Through maximum engagement of all members of society in the self-enhancement, of their personal lives and their economic spirit of creation, the system can transform itself to a high product and service development society that reaps the rewards of international competition.  Culture must engage, encourage, and reward individuals or those who can offer the most are stifled under poor reinforcing economic structures that lead to a path of decline for a nation and its people.  The best and brightest must rise if there is to be hope for a better future.  Is it what you know or who you know that filters its way into your decision-making process and management decisions?

Hofstede, G. H. (2001). Culture's consequences: Comparing values, behaviors, institutions, and

organizations across nations (2 ed.). Thousand Oaks, CA: Sage.

Johnson, J. P., & Lenartowicz, T. (1998). Culture, freedom and economic growth: Do cultural

values explain economic growth? Journal of World Business, 33(4), 332-356.

OECD. (2011). Retrieved ft-om OECD:

http://www.oecd.org/home/0,2987,en_2649_201185_l_l_l_l_l,00.html

Overbaugh, S. (2013). National culture, country-level competitiveness, and economic development. International Journal of Business and Economics Perspectives, 8 (1).

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