Chapter 8

1. Chapter 8 Norton Media Library Chapter 8 Education Dwight H. Perkins Steven Radelet David L. Lindauer

2. Chapter 8: Perkins, et al text • 1.Trends and Patterns • Stocks and Flows • Boys versus Girls • Schools versus Education • 2.The Benefits of Education • Education as an Investment • Internal Rates of Return to Schooling • Estimated Rates of Return • Controversies and Puzzles • 3.Making Schooling More Productive • Underinvestment • Misallocation • Improving Schools • Reducing the Costs of Going to School • Inefficient Use of Resources • It’s About More than the Money

3. Chapter 8: Education: Learning Objectives • After reading the chapter, you ought to understand and be able to explain: • The concept of investment in human capital and its contribution to growth. • Why governments in developing countries have accorded high priority to investment in education. • The main trends and characteristics of education in developing countries. • The limits of translating increased education into increased development. • The recent results from randomized trials in education. • How the private rate of return can diverge from the social rate of return to education and the implications of this divergence for education policy. • The range of critiques and proposals for reforming education policy in developing countries.

4. Introduction • Education is a form of Human Capital • Economist T.W. Schultz underscored the critical role of human capital investment in the form of education for development

5. Trends and Patterns • Stocks and Flows: Stock is amount of schooling embodied in a population • Flows: Net change in those flows as a result of enrollment • Gross enrollment rates have risen many parts of the world at various levels • Net enrollment rates are enrollments of those relevant age

6. Fig. 8.1: Educational Attainment of the Adult Population (ages 25-64)

7. Table 8.1: Changes in Schooling, Gross Enrollment by region, 1970-2000

8. Fig. 8.2: Educational Attainment of Adult Population

9. Table 8.2: Estimates of Enrollment for Adults 25 and over by Gender and Region

10. Schooling versus Education • There is a gap between rich and poor nations in educational quality • Learning Outcomes also vary (see figure 8.3)

11. Fig. 8.3: Learning Outcomes: Reading Achievements for 15 Year Olds

12. The Benefits of Education • Education is an Investment • Education is a human capital investment • Internal Rates of Return to Schooling • Estimated Rates of Return

13. Benefits of Education • Present Value (PV) of all costs and benefits • PVb= Sum of the present value of all future private benefits (see 8.1) • PVc= Present value of all anticipated private costs (see 8.2) • Internal Rate of Return is the rate or (r ) that which equates $PVb=$ PVc ( see formula 8.3)

14. Fig. Earnings by Age, Education, & Gender in Nicaragua,1998

15. Fig. 8.4 Earning by Age, Education, and Gender, Nicaragua, 1998

16. Fig. 8.5: Determinants of the Private Returns to Schooling

17. Fig. 8.6: Determinants of Social Returns to Schooling

18. Education is a “public good” • Education is a public good with a positive externalities • The Privates sector or markets will under produce education if left to themselves. • The fact that Education has a positive externalities justified public provision or subsidy of education.

19. Social and Private Rate Returns to Education • There is a difference between private and social rate of return to education for countries which depends on the level of income • See figure 8.3 next for the relative rates of return of education at Primary, Secondary & College levels for low, Middle, & High Income countries • What is level of education has the lowest & highest return in LICs?

20. Table 8.3: Returns to Schooling by Level and Country Group

21. Fig. 8.7 Public Spending On Education

22. Fig. 8.7 Public Spending on Education, early 2000s

23. Chapter 8 Education- Summary • I. Stocks refer to the total amount of schooling in a population, flows refer to the net change in those stocks. Educational data such as gross enrollment rates, net enrollment rates, and grade survival rates are presented for different regions. Further division into boys and girls clearly indicates the gender differences. Finally, a distinction is drawn between schooling and education, that is, the capabilities individuals acquire from time spent studying and learning. • II. The use of cost-benefit analysis in education planning is treated in more detail. The text charts Nicaraguan age-earnings profiles for men and women separately and for differences among no education, primary, secondary, and tertiary levels. The chapter then explains the divergence between private and social rates of return to education, and implications for education policy. Empirical studies indicate that rates of return on education are generally high in developing countries, especially for basic literacy. • The chapter also explains why cost-benefit analysis and rate-of-return computations cannot be used mechanically as tools for planning educational investments.

24. End Chapter 8 W. W. Norton & Company Independent and Employee-Owned This concludes the Norton Media LibrarySlide Set for Chapter 8 Economics ofDevelopmentSIXTH EDITION By Dwight H. Perkins Steven Radelet David L. Lindauer