Our basic measure of economic performance is the level of output per worker. National income and product account data and labor force data are taken from the Penn World Tables Mark 5.6 revision of Summers and Heston (1991). We do not have data on hours per worker for most countries, so we use the number of workers instead of hours to measure labor input. Our calculations of productivity also incorporate a correction for natural resources used as inputs. Because of inadequate data, our correction is quite coarse: we subtract value added in the mining industry (which includes oil and gas) from GDP in computing our measure of output. That is, we assign all of mining value added to natural resource inputs and neglect capital and labor inputs in mining. Without this correction, resource-rich countries such as Oman and Saudi Arabia would be among the top countries in terms of productivity.4 Average educational attainment is measured in 1985 for the population aged 25 and over, as reported by Barro and Lee (1993). Physical capital stocks are constructed using the perpetual inventory method.

Because we only need data on the capital stock for 1988, our measure is quite insensitive to the choice of the initial value. Our data set includes 127 countries.

Regarding the parameters of the production function, we take a standard neoclassical approach.7 We assume a value of a = 1/3, which is broadly consistent with national income accounts data for developed countries. With respect to human capital, Psacharopoulos (1994) surveys evidence from many countries on return-to-schooling estimates. Based on his summary of Mince-rian wage regressions, we assume that ф(Е) is piecewise linear. Specifically, for the first 4 years of education, we assume a rate of return of 13.4 percent, corresponding to the average Psacharopoulos reports for sub-Saharan Africa. For the next 4 years, we assume a value of 10.1 percent, the average for the world as a whole. Finally, for education beyond the 8th year, we use the value Psacharopoulos reports for the OECD, 6.8 percent.