The Production of Cognitive and Non-cognitive Human Capital in the Global Economy

A country’s welfare depends on its ability to accumulate cognitive and non-cognitive human capital. In this paper, we model the productions of cognitive and non-cognitive human capital in general equilibrium. We use revealed comparative advantage to infer countries’ non-cognitive and cognitive productivities without a direct measure for the non-cognitive dimension. Our model also delivers analytical expressions for how non- cognitive and cognitive productivities can be aggregated into a single human-capital quality index, or HCQI, and how HCQI relates to output per worker.
Our model allows us to obtain the values of non-cognitive and cognitive productivities and HCQI, using publically available data for a sample of mostly high-income countries. We find that: 1. many countries with low test scores have high non-cognitive productivities; 2. the hard-to-measure non-cognitive human capital is important for HCQI, and HCQI is important for output per worker; 3. the trade-o¤ between cognitive- and non-cognitive productivities can be visualized and analyzed using an iso-HCQI curve: e.g. uneven cognitive and non-cognitive productivities tend to lower HCQI; 4. this trade-o¤ can be quantified, and has policy implications: e.g. excessive attention to test scores may decrease aggregate output; 5. international trade matters, theoretically, for HCQI, because the gains from trade help to compensate a country for uneven productivity across human capital types: e.g. the iso-HCQI curve would have a very different shape under free trade.