Human capital and state income differences in Mexico

We study the relationship between differences in human capital and differences in output per worker of the federal entities of Mexico. We consider both quantity and quality of education in human capital formation. Our measure of quality of education is constructed using the OECD's programme for International Student Assessment (PISA) maths achievement test scores. Our results are consistent with different methodologies and data sources. We find that variations in human capital explain upwards of 40% of the variations in state GDP per hour worked. Our results indicate that Mexican states should place more emphasis both in the quantity as well as quality of schooling to support economic development of the states.