Higher Education Quality, Income and Innovation: Cross-Country Evidence

This study develops a novel cross-country measure of higher education quality by leveraging the robust relationship between institution-level indicators—such as faculty-to-student ratios and global university rankings—and the earnings of graduates employed overseas. Using U.S. microdata, it shows that global rankings are strongly correlated with key quality dimensions, including research performance, teaching environment, enrollment size, international outlook, and student selectivity. Building on this relationship, a country-level index of college education quality is constructed for 98 countries, capturing variations in institutional characteristics weighted by their estimated effects on graduate earnings. To examine macroeconomic impacts, the study estimates cross-country regressions of GDP per worker, resident patenting, and R&D expenditures. An instrumental variable strategy—exploiting geographic proximity to global academic hubs—is used to address potential endogeneity. The results show that tertiary education quality has a large and statistically significant effect on all three outcomes, underscoring its role in long-run economic development and innovation capacity.