Schooling Ain’t Learning in Europe: A Club Convergence Perspective

Comparative Economic Studies https://doi.org/10.1057/s41294-022-00194-3 Schooling Ain’t Learning in Europe: A Club Convergence Perspective Linda Glawe1 · Carlos Mendez2 Accepted: 21 May 2022 © The Author(s) 2022 Abstract Convergence in human capital is a key precondition to achieve income convergence in the European Union; however, so far research on this topic has nearly been absent. Our paper contributes to the literature by investigating the human capital convergence dynamics within the EU over the period 1990–2016 using a nonlinear dynamic factor model. While we find evidence of absolute convergence with respect to the average years of schooling, we identify four convergence clubs with respect to learning outcomes, and the divergence across those four clubs is increasing over time. A subsequent analysis of the determinants of the learning clubs reveals that institutional and learning spillovers are decisive for whether an EU Member State is on a high or low human capital trajectory. Keywords Human capital · Learning · Club convergence · European Union · Institutional quality · Spillover effects JEL Classification R10 · R11 · R58 Introduction Real convergence across the European Union (EU) Member States is a key goal of the European integration process, as stated for example in the EC Treaty of 1957 and the Maastricht Treaty of 1992. However, recent research indicates that especially after the Global Financial Crisis, there appear to be increasing income divergence tendencies within the EU (see Glawe and Wagner 2021a, * Linda Glawe Carlos Mendez 1 Faculty of Economics, University of Hagen, Universitätsstr. 11, 58084 Hagen, Germany 2 Graduate School of International Development, Nagoya University, Furocho, Chikusa Ward, Nagoya, Aichi 464‑8601, Japan Vol.:(0123456789) L. Glawe, C. Mendez for an overview). In addition, various studies report that the EU Member States converge to different income clubs; these clusters usually follow a specific geographical pattern with many south-eastern countries being caught in a bad income equilibrium (see, e.g., Von Lyncker and Thoennessen 2017; Bartkowska and Riedl 2012). It is of particular importance to identify the driving factors of this development since persistent income disparities could endanger the stability and smooth functioning of the EU. In particular, it appears logical to study the dynamics of the underlying growth determinants to gain more insights into the income convergence process itself; however, so far, little research has been conducted in this respect. Despite an uprising literature branch that focuses on institutional convergence within the EU (see Glawe and Wagner 2021b), research on the convergence of other growth determinants is nearly absent (not only for the EU, but also with respect to other countries and regions). Our paper aims at contributing to close this research gap by focusing on human capital. There is a significant body of literature that identifies human capital as one of the most important factors driving economic growth (see, e.g., Lucas 1988; Mankiw et al. 1992; De la Fuente and Doménech 2006; Hanushek and Woessmann 2008) and real convergence, also within the EU (see, e.g., Von Lyncker and Thoennessen 2017; Glawe and Wagner 2021b, who identify human capital as a key driver of income and, respectively, institutional convergence clubs within the EU). Moreover, a sound human capital endowment is critical for switching from an imitation-based to an innovation-driven growth strategy which is in turn decisive for sustaining growth at higher income levels (cf. the literature on innovation-based endogenous growth models, e.g., Aghion and Howitt 1992). This is of particular relevance for the EU since the region as a whole is already comparatively well developed, but region-specific income disparities are persistent and even widening, particularly between the core EU and the periphery. For some upper-middle-income EU countries, upgrading human capital might be also a necessary precondition to overcome an (upper-) middle-income trap (MIT), since education is usually identified as an important MIT triggering factor. Overall, studying the convergence dynamics of human capital within the EU seems to be an important task. In our paper, we analyze whether there is human capital convergence across EU Member States or whether there exist multiple human capital clubs within the EU over the period 1990 to 2016 by using the log-t test proposed by Phillips and Sul (2007a, 2009). Importantly, we employ not only quantitative human capital data (namely, the average years of schooling) but also focus on the quality of human capital by exploiting a new database on harmonized measures of learning. Thus, we take into account that recent research emphasizes that schooling (“quantity”) does not necessarily imply learning (“quality”) (see, e.g., Filmer et al. 2020; Glawe and Wagner 2022). Our results indicate that while there is only one club in schooling, there exist multiple learning clubs. Interestingly, neighboring EU countries tend to cluster together, indicating that physical location and geographical spillovers are important to the formation of learning clusters within Europe. A subsequent ordered probit analysis of the determinants of the learning clubs reveals that there exist indeed strong spatial spillover effects. Our results suggest that the spatial lag of the initial level of learning is decisive for learning club membership, trumping institutional Schooling Ain’t Learning in Europe: A Club Convergence… quality (which still has a small positive effect once we control for learning) and culture measured by trust. The remainder of the paper is structured as follows: The subsequent “Related Literature” section briefly presents the related literature. “Data and Methods” section then introduces our data and estimation strategy. Our regression results are discussed in “Results” section. In particular, “Convergence Test and Club Identification” sub-section presents the results of the convergence test, and “Determinants of Club Membership” sub-section describes our findings with respect to the analysis of the club determinants. “Concluding Remarks and Policy Implications” section concludes and draws some policy implications. Related Literature There are several literature strands related to our paper, most importantly the literature on the impact of human capital on growth, the literature on the nature of human capital development, and the literature on the concept of club convergence. Each of them will be briefly discussed in the following. Impact of Human Capital on Growth It is by now a well-established fact that human capital is decisive for explaining differences in economic performance across countries and regions. At the macro-level, the economic growth literature identifies three main channels through which education can affect growth, namely via (i) increases in labor productivity (cf. Man (...truncated)