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Cognitive abilities and income: preliminary evidence from a developing country

Raufhon Salahodjaev (Tashkent Institute of Finance, Tashkent, Uzbekistan; Westminster International University in Uzbekistan, Tashkent, Uzbekistan and ERGO Analytics, Tashkent, Uzbekistan)
Ziyodakhon Malikova (Westminster International University in Tashkent, Tashkent, Uzbekistan)

International Journal of Development Issues

ISSN: 1446-8956

Article publication date: 20 October 2020

Issue publication date: 16 March 2021

Abstract

Purpose

Related literature finds that human capital proxied by cognitive abilities is an important antecedent of numerous specific life outcomes. The purpose of this study is to extend existing evidence by investigating the link between cognitive skills and income in Tajikistan. Tajikistan is a landlocked low-income country situated in Central Asia. Its population is 9.1 million people and gross domestic product per capita of US$822. According to the World Bank, Tajikistan has made significant progress in decreasing poverty levels from 83% in 2000 to 29.5% in 2017.

Design/methodology/approach

The data for this study comes from the 2013 Jobs, Skills and Migration Survey conducted by the World Bank and the German Society for International Cooperation. The main explanatory variable of the study is the cognitive abilities index of the respondents. The survey used item response theory (IRT) approach to estimate the ability of respondents. IRT is a method or a set of statistical frameworks, used to explore assessment item data, such as cognitive abilities assessment data. The wage function was estimated using the ordinary least squares method because the results are easier to interpret (Jencks, 1979; Bowles et al., 2001; Groves, 2006).

Findings

The baseline results are reported in Table 2. The results in Column 1 demonstrated the link between cognitive abilities and income without control variables (unconditional model). As expected, cognitive abilities are positively and significantly related to income (a1 = 0.0715, p < 0.01). The results from the unconditional model suggest that one standard deviation increase in cognitive abilities is associated with a nearly 17% increase in income.

Research limitations/implications

However, the study has a number of limitations. First, the dependent variable measures the overall income of the respondent, which includes the profit from other businesses. The survey does not provide data on monthly wages of respondents. Second, the sample may not perfectly represent the overall population of Tajikistan. To partially resolve this issue, this paper re-estimated out results for various sub-samples. Another important limitation of this study is the lack of respondent’s family background, which is an important correlate of human capital and income.

Practical implications

The results in the study offer preliminary evidence on the link between cognitive abilities and income in Tajikistan. However, the results of the study also suggest that both measures of human capital are positively related to income. Therefore, policymakers in Tajikistan should invest greater resources to health care, education and training programs as cognitive skills can be built in particular in the early stages of the life cycle. Indeed, Tajikistan has a significant potential for economic growth model driven by human capital. According to the World Bank, the adult literacy rate in Tajikistan is 100%, which is significantly above of what is observed in other developing countries. This may imply that the human potential in this country is considerable, and further investment in soft and hard skills would have a positive impact on economic growth.

Originality/value

This paper offers new evidence on the link between cognitive abilities and income, using data from Tajikistan. First, this paper finds that cognitive abilities are positively and significantly correlated with income. Second, this paper finds that this link remains robust even when this paper control for a large set of personal and job-related characteristics. The results from the unconditional model suggest that one standard deviation increase in cognitive abilities is associated with nearly a 17% increase in income.

Keywords

Acknowledgements

Ziyodakhon Malikova would like to thank project “Empowering Women to Participate in Public Administration and socio-economic life” UNDP Uzbekistan for feedback and suggestions received during Online trainings there.

Citation

Salahodjaev, R. and Malikova, Z. (2021), "Cognitive abilities and income: preliminary evidence from a developing country", International Journal of Development Issues, Vol. 20 No. 1, pp. 62-73. https://doi.org/10.1108/IJDI-06-2020-0123

Publisher

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Emerald Publishing Limited

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