Based on the material (archaeological) evidence from the period pre-dating this study, the pre-Second Temple Jews were already quite literate - just look at the huge quantity of inscriptions and literary output. The growth of Christianity - at the expense of Judaism - had to do with two factors: a. the greater accessibility/acceptability of Christian theology (unpalatability of kosher dietary laws in Judaism and circumcision and Christianity's willingness to incorporate pagan ideas and practicies). b. the outlawing of missionizing by Jews and Christians under Roman law - the Jews stopped, the Christians did not. Finally, Jewish entry to Western Europe occurred before the emergence of Islam, rather following the expansion of the Roman empire in that direction. Jews outside of the "Land" lived in great urban centers such as Rome and Alexandria, etc.
from the article: What makes Jews so smart?