Cross-Country Differences in the Quality of Human Capital∗

This paper constructs a cross-country measure of the quality of human capital using a novel approach based on international test scores data. The first main finding is that there are large differences in the quality of human capital- one year of schooling in the U.S. is equivalent to three or more years of schooling in a number of low-income countries. I incorporate the estimated series for the quality of human capital in an accounting framework calibrated using evidence on Mincerian returns. This leads to the second important finding, which is that the fraction of income differences explained by the model rise substantially when one includes the quality of human capital; the increase is around 25 percentage points