The main focus of this dissertation is to examine the second Millennium Development Goal (MDG) of achieving universal primary education (UPE) – ‘ensuring that by 2015…boys and girls alike, will be able to complete a full course of primary schooling’ (UN, 2010). This paper identifies the returns from education at both the private and social level, providing an economic justification for investment in education, which will be further explored by looking at the Human Capital Theory (HCT). Following this I will analyse recent estimates from around the world and in particular SSA, to determine whether UPE is realistically achievable by 2015. To do this I will be collecting data from the World Bank, United Nations and Millennium Development Goal Indicators to analyse information such as net enrolment rates, the proportion of students that reach grade five of primary school, and literacy rates.
This paper identifies that although SSA has made significant improvements – with enrolment increasing by 51% between 1999 and 2007, it is still unlikely that UPE will be achieved by 2015 given that around 42 million SSA children are still out of school (UN, 2010). This paper identifies that these results can be attributable to various elements of market failure – gender inequality, under schooling (due to demand and supply side constraints) alongside the misallocation of resources. This paper highlights that lack of resources and financial constraints of the national budget are fundamental economic limitations hampering the right of EFA – with the UN predicting that double the current number of teachers are needed to achieve UPE. The World Bank (2010) stresses the importance of achieving gender equality in education as a significant factor in helping to achieve UPE, alongside its effective protection weapon against HIV/AIDS. This paper realises the inter-link between the MDGs to help eradicate world poverty, inequality and stimulate economic growth.
I will then go on to identify policy changes that will aid progress towards achieving the second MDG by overcoming supply and demand side constraints. Sound macroeconomic policies combined with education are fundamental for the construction of globally competitive economies and democratic societies. As described by Birdshall and Londono (1998) ‘education is key to creating, applying and spreading the new ideas and technologies which in turn are critical for sustained growth; it augments cognitive and other skills, which in turn increase labour productivity’. This will enable sustained economic growth which will further help to reduce poverty and inequality and enable the achievement of the second MDG, and hopefully many other MDGs.
Chapter 1 An economic justification for investment into education
Psacharopoulos and Woodhall (1997) emphasize that
‘Human resources constitute the ultimate basis of wealth of nations…human beings are the active agencies who accumulate capital, exploit natural resources, build social, economic and political organization, and carry forward national development.’
The augmentation of developing economies in SSA can be constituted through acquiring education which ultimately increases the productivity of the un-educated workforce, developing the human resources required for economic and social transformation. The acquisition of new skills and knowledge helps to increase productivity and help improve citizens to upgrade their general standard of living, creating positive social changes to society as a whole.
The Human Capital theory has become the most common theoretical framework for the adoption of education, as described by Schultz (1971), which rests on the assumption ‘that formal education is highly instrumental and even necessary to improve the production capacity of a population.’ Such a theory has provided reasoning for heavy investment into education which would be restored through higher future earnings – ‘as an educated population is a productive population’ (Schultz, 1971). Such economic returns are at both the macro and micro levels which will be addressed below.
There is however the issue of unlimited wants and limited resources. As described by the UN (2010) it is estimated that almost double the current number of teachers are required to meet the MDG requirements in 2015. Such supply side constraints confine individuals – failing to provide them the right to education. This is exacerbated by financial constraints due to the constrained national budgets and social-political environment of a particular country (Boissiere, 2004). These issues will also be discussed later on in the chapter of market failure of education.
The rest of this chapter continues to examine the effect of investment into education by looking at the private, social and macro-economic effects to education.
(i) Private Returns to Education
The calculation of private returns to investment in education is essentially a micro-economic exercise which can be calculated using the net discounted present value calculation (NDPV). This includes a given discount rate, i; which represents an individual’s valuation of the present relative to the future in terms of consumption and leisure, amongst others. It is assumed that it is worthwhile investing in education if:
(B1 – C1) / (1 + i) + (B2 – C2) / (1 + i)? + …+ (Bn – Cn) / (1 + i) n is equal or superior to zero (Sheehan, 1973).
[Where; B1 = benefits in period 1; C1 = costs in period 1; i = the discount rate]
Individuals undertake a cost benefit analysis to determine a quantifiable economic rate of return to education and consequently whether education would be obtained. At a stance, future earnings need to at least compensate individuals for the direct and indirect costs of education – which can be seen in Figure 1. Calculating private benefits are more difficult than computing the costs of education – highlighting a weakness in the HCT.
Figure 1: Potential Earnings Streams Faced by a High School Graduate and College Graduate (Borjas, 2010)
Borjas (2010) shows the direct and indirect costs of acquiring education, which will hopefully be counteracted by the higher earnings faced by the college graduate, justifying his decision to acquire more education. Although not primarily interested in whether a pupil is a college graduate or high school graduate, the same principle applies to a child in SSA on the decision of whether to attend school or not. The foregone earnings of attending school, than perhaps working in the agricultural sector, can be seen by the shaded area 2 in the figure. In addition to this are the direct costs of acquiring education – such as books and tuition fees as shown in area 1. If these costs are lower than the benefits of increased earnings obtainable in the future (area 3) then an individual will attend school.
Most empirical literature on the private returns to education follows Mincer’s wage regression which can be expressed in the following form:
Ln (E) = a + bs + cX + dX? + eZ + u
[Where: E = a measure of earnings; S = years of schooling; X = years of work experience; X?= the square of years of work experience; and Z = other variables that could be deemed important, such as gender].
Mincer’s (1974) contribution to the analysis and distribution of earnings through his pioneering focus on labour market experience or on the job training includes the development of the human capital earnings function. This function applies regression analysis to earnings data on a cross-section of individuals to relate people’s earnings and their level of schooling and work experience. The regression coefficient on the schooling variable can, under certain assumptions, be interpreted as the private returns to education. It may however be possible to alter this coefficient to include other costs of education – such as direct public and private costs rather than just foregone earnings which would help reduce the limitation of the model.
Mincer’s model illustrates that an individual increasing their human capital stock via education to enhance their productivity of labour and of the capital they use at work will enable them to earn higher earnings. This provides a microeconomic justification for investment in education. The differences between individuals who acquire and don’t acquire education can be calculated by observing how log wages change with the level of education. This calculation can also be used as an indication to predict the demand for education.
However critics of the model identify the absence of the term ability – which exists prior to the start of human capital accumulation process and which affects the labour market wages even after controlling for acquired human capital. There are also issues concerning the quality of the education provided – the UN (2010) provided evidence on the ratio of pupils to teachers and found that these current levels don’t enable valuable learning to take place, thus hindering the returns to education. The Mincer’s regression does however provide insight into the economic justification for private investment into education. From the equation it can be seen that earnings are a function of the years of schooling acquired.
Sianese and Van Reenen (2000) also highlight the issue with the missing term ‘quality’ in Mincer’s equation which is not taken into account. Sianese and Van Reenen (2000) emphasise that obtaining education is meant to have a positive impact on the productivity of an individual in the labour market to enable him/her to obtain a higher wage in the future. Although, acquiring education doesn’t necessarily signify higher productivity (the issue of education as a signal is discussed in further detail later on). This raises an important issue about the debate of public provision – whether the Government should concentrate resources in expanding education in SSA or rather to improve the quality of educational structures for existing studentsThe former is the requirement to achieve UPE but the latter highlights an important issue; that although a greater mass of children will be receiving education, it does not specify the quality and usefulness of obtaining education – whereby productivity may not be increased at all.
There are however various other benefits to education due to the positive spill over effects to the wider economy and economic performance which I will discuss below. Also, when assessing the profitability of education as a social investment, which is especially useful for government policy – social rates of return to investment are much more sufficient as an indicator.
(ii) Social Returns to Education
The returns to education applied to the assessment of social profitability in human capital are the private rate of return of such an investment but evaluated from a social point of view. The two returns thus only diverge due to differences in social and private costs and benefits. The social returns to education should guide the decisions governments make to finance education and distribute the optimal quantity (Sianese and Van Reenen, 2000).
Viewed as a public good, education brings benefits to society as well as at the individual level. Such social benefits range from expanded technological possibilities, increases in work force productivity and greater social equity, to name a few of the monetary advantages. Social costs include public subsidy – which includes the net cost of recovery and adjusted for any possible deadweight-losses of tax-financed public spending. There are also non-monetary (non-market) rates of return to education, but are difficult to quantify – such as externalities and spill over’s. A combination of the private and social costs of education can be seen in the following table.
Table 1: Classifying the impact of human capital (OECD, 2000)
Owens (2004) explains how human capital acts as a joint agent with social capital – that facilitates collective action, to bring about economic and social development. The OECD (2000) reveals that non-monetary returns, along with economic returns which form human capital, are one of the most important contributors to GDP.
Other non-monetary social benefits that further fuel the justification for large public expenditure on education are the positive externalities associated with the education of females. This helps to combat the spread of HIV and AIDS – due to ramifications of the fertility and family planning decisions. More educated girls tend to start families later – slowing the population growth rate which helps to combat poverty. Also, as Schultz (2003) identifies though the micro-empirical studies of child development, that increases in the schooling of the mother are associated with improvements in child development outcomes. The larger effects of the mother’s schooling are observed in the child’s birth-weight, child survival, and nutritional status as measured by the height or weight-for-height given age, age of entry into school, school enrolment adjusted for age or years of schooling completed upon reaching adulthood. The positive spill over’s of an educated mother are clear to see whereby the human capital intergenerational externalities of schooling favour social investments in women’s schooling (Schertz, 2003). This follows the achievement of gender equality – an issue I will discuss later; whereby the achievement of the third MDG will help realise the second MDG and so to achieve UPE.
The social returns to education allow an assessment of the return of public subsidy provided for primary education. For developing countries, the higher rates of return to education are found at the lower, primary level which can be seen in the table below.
RegionPrimarySecondaryHigher Sub-Saharan AfricaAsiaEurope/Middle East/N. AfricaLatin America/Caribbean
OECD24.319.915.5
17.9
n.a.18.213.311.2
12.8
10.211.211.710.6
12.3
8.7
Table 2: Social returns to education by level (Psacharopoulos, 1994)
The returns to education are highest at primary level because the marginal improvements in knowledge and skills are highest at this level, which results in a population of higher productive capacity. Such findings have provided persuasive influence on public debate regarding investment and public expenditure on primary education. The World Bank has realized the importance of UPE and have recently developed the Bank’s new Education Strategy for the next decade realizing countries will not achieve MDG2 by 2015 (World Bank, 2011).
There are however various methodological and measurement issues associated with the measurement of the various social benefits that education brings. The OECD (2000) notes that it is often difficult to quantify the benefits and spillover effects that education brings, thus the total effect of education at the individual level does not compensate for the larger benefits that it brings.
(iii) Macro-economic impact of education
To identify the full social returns of education is it necessary to look at the macroeconomic level.
The Solow (or neo-classical) model aggregates the production of an economy as a function of GDP, as shown below:
[Where Y is output; K the stock of capital; L the labour force; and t the time]
However as identified by Sianese and Van Reenen (2000) this neo-classical model doesn’t incorporate any endogenous determinants of growth rates – such as the role of education. The neo-classical model argues that a one-off permanent increase in the human capital stock will be associated with a one-off increase in the economy’s growth rate, until productivity per worker has reached its new steady-state. The new growth theory argues that the same one-off increase in human capital will be associated with a permanent increase in the growth rate.
With education playing no role in traditional neo-classical theories of economic growth, new theories have brought the role of education to the forefront, providing underpinnings that education can affect the national economic growth rate via two main channels (according to Sianese and Van Reenen, 2000) these are:
1) ‘Human capital is explicitly incorporated as a factor input in the production function, by – in contrast to the augmented neoclassical model – explicitly modelling individual educational investment choices, as well as often allowing human capital to have external effects…
2) The factors leading to endogenous growth (in particular technological change) are explicitly related to the stock of human capital. This may be because either human capital is assumed to directly produce new knowledge/ technology or because it is an essential input into the research sector which generates new knowledge/ technology.’
These two strings of thought focus on the effects of firstly the accumulation or flow of human capital, and secondly; the stock of human capital. This distinction however may cause problems for measurement when discussing government subsidies for education. Sianese and Van Reenen (2000) identify that education raises the level of human capital and will have a once-and-for-all effect on output in the former case, but will increase the growth rate of the economy forever in the latter case. There is however no consensus in empirical literature over which approach is more appropriate – whereby both yield similar predictions relating to the impact of some human capital variable on growth. It is however made implicit in this study that increasing average education in an economy will permanently increase the rate of economic growth, even after the human capital stock has adjusted to its new long-run level.
Sianese and Van Reenen (2000) further emphasise the difficulty of obtaining information on defining, measuring and comparing skills and competencies on the returns to education which forces input measures to be used as an alternative. They also highlight the problems of endogeneity bias – whereby there is a reverse causality problem with education; ‘as income grows, educational standards rise, but we cannot be confident that economic growth is caused by higher educational standards’ (Sianese and Van Reenen, 2000). This highlights that the association of education and productivity growth may reflect the demand for education, as well as its supply effects.
Chapter 2: The global situation – at a glance
Primary education is a basic human right which transforms and empowers individuals yet 100 million children of primary school age (15 percent of the worldwide total) are not in school. Of these, 42 million are in SSA (UNESCO, 2006) which makes the achievement of UPE by 2015 seem unachievable. Figure 3 shows the out of school trends projected to 2015 – at present rate, regions furthest behind will miss the literacy target for 2015 – with SSA lagging furthest behind.
Figure 3: Missing the target – out of school trends projected to 2015 (UNICEF, 2004)
Although there is much more progress to be made, there has been a thirty seven million decrease in the number of out-of-school children in the past ten years. For countries that are off track, they need to raise their completion rates by around ten percent to reach UPE target by 2015. Those countries seriously off track such as SSA need to accelerate their progress much more quickly, otherwise according to a UNICEF report (2004) these countries will not reach the target before 2040, which will deprive several more generations of the benefits of education.
SSA has the lowest completion rate by far, with around just half of all school-age children completing primary school; followed shortly behind by South Asia. Bruns et al (2003) describe the disturbing stagnation pattern over the 1990s in East and North Africa with average completion rate remaining around 74 percent. East Asia is the closest to the goal of universal primary education followed by Latin America and the Caribbean. They also identify that within regions, trends at the country level diverge sharply, with rapid progress registered in some countries, stagnation in others, and decline elsewhere.
Bruns et al (2003) suggest that the trends over the 1990s provide some encouraging evidence that where political will is strong, and effective reforms are adopted, and international support is adequate, dramatic progress in increasing primary completion rates are possible. With a significant number of countries registering significant improvements in the primary completion rate of 20 percentage points or more in less than a decade; such as Brazil, Camodia in East Asia and Nicargua in Latin America, there is still hope that other countries will reach the UPE target by 2015. However, it is clear to see from table 3 that progress is still fragile. With nineteen middle-income countries and fifty-one low-income countries experiencing stagnation or decline in completion rates over the 1990s – countries such as Zambia, Madagascar, Kenya, Iraq and Cameroon all experienced a decline in completion rates and thus achievement of UPE by 2015 does not seem reachable.
Table 3: Prospects for Universal Primary Completion (taken from Bruns et al, 2003)
The picture depicted in table 3 is not hopeful but a number of the at-risk countries could reach the UPE goal if they try and match the average rate of progress – 3 percentage points per year as observed in the best performing countries over the 1990s (Bruns et al, 2003). Bruns et al (2003) believes that at this rate of progress, all of the middle-income countries and more than two-thirds of the low-income countries would reach the MDG. In order to achieve UPE, good governance and institutional structures with the aid of international assistance should support these countries’ progress. With SSA lagging furthest behind, in order to achieve UPE they will need to improve at a faster rate. Such an achievement is suppressed by the conflict amongst these countries and thus will require an even stronger combination of political will and stronger financial effort than has been organized so far.
To evaluate such deviations from the target set by the UN it is necessary to use the three different measurement tools for UPE to identify where the problems arise. The three measurement tools for UPE are:
1) Net enrolment ratio in primary education
2) Proportion of pupils starting grade 1 who reach grade 5
3) Literacy rate of 15-24 year olds
Net enrolment rate (NER) in primary education is, according to the Millennium Development Goals Indicator (2010) the number of children of official primary school age who are enrolled in primary education as a percentage of the total children of the official school age population. The purpose of NER is to show the extent of participation in a given level of education of children and youths belonging to the official age-group corresponding to the given level of education. This is an important indicator in measuring the rates of access to education when considering gender inequality issues, as well as regional or rural/urban inequalities.
At present there is progress being made in SSA – as the number of children entering primary school has climbed sharply. The NER for primary education has risen from 56 percent in 1999 to 70 percent in 2006 (MDGI, 2010) although this is still not enough to reach UPE. While although out-of-school population has dropped by 10 million since 1999 there were still 35 million children of primary school age not enrolled in 2006. To achieve UPE this NER value needs to be close to 100 percent. In other words; almost all children in school are of the official school age whereby late school entry, repetition and drop-out rates are very low.
The second measurement tool for UPE is the amount of children who start grade 1 at primary school and reach grade 5. Completing at least five years of primary education is essential to avoid the risk of these children becoming illiterate adults.
For example; in Botswana the proportion of pupils finishing at least five years of primary education has increased from 82.0 percent in 1999 to 86.8 percent in 2005. In Kenya this statistic has increased from 72.8 in 2003 to 83.6 in 2004 (World Bank, 2010).
The knock-on-effects to literacy rates for these two SSA countries are; Kenya – 92.3 percent of boys and females in the age bracket of 15-24 were literate in 2008; for Botswana, 95.1 percent of females and males were literate in 2008. Both these countries have experienced a rise in the number of 15-24 year olds that are becoming literate. These figures will continue to rise once these younger generations pass through schooling.
Although these figures look promising, there are still 760 million persons that are illiterate. The necessity to reach UPE is essential as children’s futures and those of their children depend on whether they go to school and how much they earn. This has highlighted the role for the broader Education For All (EFA) which emphasizes ‘early childhood care and education, quality of learning, gender equality and learning skills for young people, and adult literacy’ (UNICEF, 2010) in a bid to reach the second MDG which will hopefully help realise other MDGs.
(i) Is Universal Primary Education (UPE) achievable by 2015?
To assess whether UPE is achievable by 2015 Bruns et al (2003) focused on fifty-five of the largest low-income countries in the world in which 75 percent of all children are out of school globally. Such countries have fragile domestic resource bases with institutional weaknesses making them priority for a global effort to support the achievement of UPE. Bruns et al (2003) analysed the primary completion rates and gross enrolment rates as a function of characteristics of the education system and plotted the results in the graph shown below. Clearly visible is the variance in the relationship between school enrolments and completion rates, providing a strong argument for the importance of tracking primary completion directly.
Figure 4: Primary School Completion Rates and Gross Enrolment Ratios in a Sample of Low-Income Countries, circa 1999/2000 (Bruns et al, 2003).
The diagonal line in the graph represents a perfect one-to-one mapping between GER and PCR which highlights that few of these countries have achieved as such. The 51 low-income countries under analysis were categorised into four stylized groups to deepen the analysis. Group 1 comprises relatively successful countries, with high GER (85%>) and high PCR (70%>). Group 2 includes high inefficiency counties, with high GER (80%>) but low PCR (both 60%<). Group 3 contains low coverage counties, with low GER and PCR (both 60%<). Group 4 includes countries that are falling in between the defined ranges, presenting milder version of these patterns.
For these stylised groups, education spending and service delivery characteristics were analysed enabling several clear patterns to emerge. Group 1 who is relatively more successful than the other groups devote a high share of their GDP to public primary education; have unit costs that fall in the middle range; pay teachers an average annual wage of about 3.3 times per capita GDP; have an average pupil-teacher ratio of 39:1 and have average repetition rates below 10 percent (Bruns et al, 2003). For Groups 2 and 3; their statistics deviated from these average values. For Group 2; countries in this bracket have lower average spending and much higher repetition rates – 28 percent on average. Group 3 countries have considerably higher unit costs, driven by very high average teacher salaries.
This analysis suggests that the countries doing relatively well in Group 1 may offer an indicative benchmark to guide the other groups, providing a clear strategy to achieve UPE. Furthermore, this data suggests that to achieve UPE countries have very different paths to follow including different costs and structure of service and delivery, compared to the indicative benchmark. Also brought to attention by Bruns et al (2003) is that to achieve UPE it also depends crucially on the education system reform other than just the financial reform. Such education reforms are discussed in a later chapter under policy proposals.
Bruns et al (2003) calculated that globally, roughly $33-38 billion per year in additional spending on primary education will be needed in developing countries between now and 2015 if UPE is to be achieved. Clearly this is a significant challenge and is a major increase relative to current spending levels. From this, Bruns et al (2003) do not believe that even with optimal policy reforms and strong domestic fiscal commitment to achieving UPE, countries themselves will not be able to generate the resources required, and will necessitate up to $5-7 billion of this spending to come from external aid.
Chapter 3: Market Failure and limitations of education
(i) Gender inequality in education
Further to these developing countries being off-track from reaching UPE by 2015 are the high levels of inequality between the quantity and quality of education that men and women receive. The third MDG set out by the UN promotes gender equality and empowerment of women with the target of eliminating disparity in primary education (UN, 2010). This highlights the synergy between achieving UPE and the accomplishment of other MDGs. The World Bank (2011) views education as a method to prepare children to participate in their society and the global economy, and is the basis for reducing poverty and inequality, and also to improve health and to enable the use of new technologies and spread knowledge. Figure 4 shows the disproportion between boys and girls enrolled at primary school, with the lowest rates of enrolment in SSA.
Figure 4: Primary education – percentage of children enrolled in and attending primary school 1996-2002 (World Bank, 2000)
According to the World Bank (2011) the second MDG of educating children; particularly girls – has the greatest impact on eliminating poverty. For this reason, the World Bank has placed education at the forefront of its poverty-fighting mission since 1962. Data suggests that although education opportunities for girls have expanded, the gender gap still remains large – which is especially apparent in rural areas. ‘Cultural attitudes and practices that promote early marriage, the seclusion of girls and the education of boys over girls continue to present formidable barriers to gender parity’ (World Bank, 2000). Such tradition hampers the achievement of UPE and EFA unless the realisation of the third MDG and empowerment of women is achieved.
Figure 5 displays developing countries progress toward gender parity; with SSA lagging furthest behind suggesting that they are unlikely to achieve gender parity by 2015.
Figure 5: Progress toward gender parity in primary education (World Bank, 2000)
Reasons for such gender disparities are highlighted by Tembon and Fort (2008) who identify five core issues that hamper this achievement and lessen the effectiveness of education systems. Such problems are educational quality, access and retention, post-primary education, the transition from school to work, and emerging issues such as HIV/AIDS, violence and conflict. Some of these issues are identified in the NER, completion of at least five years of primary education and adult literacy rates.
Other advantages to girls receiving at least five years of primary education have been discussed in the social returns to education section. The positive intergenerational effects help to reduce dependency ratios, boost the survival rate, educational levels and raises per capita spending – which helps lift households out of the vicious cycle of poverty along with other economic and social benefits.
(ii) Under schooling – the market failure of education
Given the amount SSA lags behind achieving UPE and thus will not reach its target by 2015, this section looks into the reasons why some children are not receiving at least five years of schooling.
It is apparent that the main reason these children do not attend school is due to family budget constraints. Many feel that attending school and getting an education does not guarantee a high return or outweigh the costs. With the schooling decision generally undertaken by parents who are blinded by the substantial in-direct costs of education, it results in too few children going to school. This highlights problems with asymmetric information amongst parents, justifying the need for public provision of primary schooling.
The individual’s decision of whether to attain primary education is displayed in Figure 6 below. Individuals only consider the private returns to education when acquiring education although the social benefits are much higher – due to the spill over effects and positive externalities associated with education. This results in too little education being obtained, causing market failure.
Figure 6: Private decision of amount of education to obtain (adapted from Todaro and Smith, 2006).
According to the HCT the decision to go to school is often undertaken by the parents who usually only consider the narrow economic returns of education and exclude the full social returns. Parents have to evaluate the costs and benefits of educating their children; whereby the private costs of schooling are deducted from the benefits associated with wage differentials from an initial decision point when their child may enrol in school.
According to Schultz (2003) the private incentives for student-family to enrol in school are the increased wage opportunities that are attainable after receiving schooling and the increased consumer benefits. The costs incurred to send their children to school include the value of the student’s time while going to school – such as time spent travelling to school, their time in class and foregone earnings, and also the direct financial expenses such as fees and textbooks. These foregone earnings are intensified during seasonal farming events, and when the child becomes older and more productive, causing more children to drop out of school and lower the completion rate further. It is usually the case that these substantial indirect costs of going to school exceed the expected income gains in the future from receiving education, resulting in a reduction in demand for education and enrolment.
The decision of the parent to enrol their child in school must value the gains their child is likely to receive from their schooling over their adult lifetimes. The private rates of return to schooling need to equalise the present discounted value of private benefits and costs. In order to make this decision parents must be willing to reallocate resources to enable their child to go to school and make such schooling investments. One possibility is for the family to borrow to enable them to make these investments; which appear likely to enhance their children’s future productivity and thus hopefully receive future return to cover such costs. However credit market imperfections often prevent this from happening despite the private returns that they could obtain. Schultz (2003) identifies the reason for this stems from the belief that the poor, who are constrained in access to such credit, and because human capital cannot generally be used as collateral by lending institutions or money-lenders. Consequently, only families with sufficient income send their children to school – resulting in only such individuals acquiring the signal; indicating that they have attained a certain level of education. This highlights a market imperfection whereby a signal doesn’t necessarily signify higher productivity, but only identifies those that have been able to afford schooling. If educational degrees/ attainment are used as a device to signal higher innate ability without raising individual productivity, then the social rate will be less than the private one (Sianese and Van Reenen, 2000). It is also causing the Government to spend too much on tertiary education which is both inefficient and an inequitable use of public resources.
(iii) Misallocation of resources
As just briefly mentioned above, problems with the misallocation of resources are another explanation of market failure in education. This misallocation is across the different levels of education – namely primary, secondary and tertiary. Perkins et al (2006) identifies that ‘among the 19 sub-Saharan African countries for which the relevant data are available, the median gross enrolment rate for tertiary education is 3 percent while the medial share of total education expenditure devoted to tertiary sector is 17 percent’. This exacerbates the inefficient use of public resources where a gap between enrolment rates and expenditure shares suggest that more attention needs to be paid to how much resources are being spent.
This is amplified by the high percent of generous allowances the government distributes to students to obtain tertiary education. Perkins et al (2006) discovered that up to 50 percent of non-educational expenditures in the form of student allowances, scholarships and subsidized housing, health care and loans was spent on tertiary education among African countries, stretching the already constrained education budget.
Given that social and private returns to education are highest at primary level – it seems imperative that governments invest more in the primary sector, then once UPE is achieved, to further invest in the secondary level, then tertiary. Given that governments invest a lot of money into education explains the high social costs of education – which is lower at primary level. However estimates of the social returns to education in Table 1 do not take into account the positive externalities associated with education at the different levels, which is mainly due to the difficulty of estimating such returns.
Given that national governments have primary responsibility for developing and implementing appropriate measures to achieve UPE, good governance and strong institutions are of vital importance to achieve it. The drive to achieve this must come foremost from the political leaders which can be translated through legal, governance and bureaucratic structures.
Policy makers and those concerned with promoting economic development need to make schooling a better investment for children in SSA and their families, as a lot of time is devoted to education to cover the direct costs of education provided by Governments and donors (Perkins et al, 2006). The political drive and determination to achieve UPE can be expressed through the amount of government expenditure spent on primary education. The UNICEF (2010) states the share of GDP for education has increased particularly in SSA countries since 1999, however this share ranges considerably from more than 6 per cent in some large African countries to less than 3 percent in large South Asian countries. Governments in SSA generally spend too little on educating their children and fail to provide the right amount of education. This is exacerbated by the problems of calculating the returns of education and no guarantee that more money spent on education yields a more productive outcome.
Furthermore, the lack of investment in education in SSA is usually the result of fiscal constraints. The various objectives of the government cover a wide range of topics – such as education and health, but also other social areas such as the military and debt service. Negative growth rates and issues surrounding defence and war have depressing impacts on the amount of expenditure on education, resulting in entire cohorts of children missing out on education than would have been apparent in a more stable economy. Such underinvestment in education results in many SSA countries not achieving the target of UPE by 2015 as set out by the second MDG.
Chapter 4: Policy Proposals – helping more children go to school
According to the World Bank (2010)
‘to reach the MDGs by 2015, school systems with low completion rates will need to start now to train teachers, build classrooms, and improve the quality of education. They will also have to remove barriers to attendance, such as fees and lack of transportation…’
With conventional knowledge that income inequality leads to educational inequality, and vice versa, there is strong evidence in the support of increased public investments in primary education. Limited capacity and low quality of public schools throughout SSA have resulted in low levels of enrolment and rising inequality to form, which alongside demand-side constraints emphasises the role for public intervention to achieve UPE.
Various methods and approaches can be used to induce families to send their children to school to help reduce the 42 million children in SSA that are out of school (UNESCO, 2006). As identified earlier, poor families constrained by low income cannot afford to send their children to school, even at primary level. School fees and uniform charges along with fees for textbooks sum up to more than a family’s combined income, as many live below the $1 a day poverty line, resulting in less demand for education.
Kremer (2008), a development economist uses randomized trials and evaluations to shed light on ways to help more children attend school and improve learning. Kremer (2008) consistently found that the decisions to attend school and invest in human capital are highly responsive to education costs and subsidies. He discovered that reducing the out-of-pocket cost of education through school meals or conditional cash transfer programs consistently increased school participation.
His results from Kenya found the magnitude of behaviour response to out-of-pocket costs was larger than expected from the standard human capital investment model. He concluded this to be the result that a large mass of households were on the margin of attending school, so that the provision of free school uniforms led to a 10-15 percent reduction in teen pregnancy and drop-out rates. Previously parents would need to pay $6 for a school uniform which is just slightly under 2 percent of Kenya’s per capita GDP. It was found that children who received payment for these uniforms remained enrolled an average of 0.5 years longer after five years and advanced an average of 0.3 grades further than their counterparts in comparison schools. This analysis was conducted using a ‘treatment’ school who were provided with out-of-pocket costs and a ‘control’ school which didn’t receive such benefits (Kremer, 2008).
Hindering such policy developments are the 1.9 million children under the age of 15 affected by HIV/ AIDS (UNESCO, 2009). This inhibits many from completing school or causing low attendance thereby reducing school demand which further inhibits UPE to be achieved. The human capital theory (HCT) framework is designed to consider complex choices that individuals make – involving the current costs and the chances of enhancing lifetime consumption opportunities. As the mortality caused by HIV/ AIDS occurs most frequently amongst adults in the middle of their working years; aged 30-45, this disease inflicts a heavy economic burden on families and society (Schultz, 2003). Within this age bracket individuals tend to be at their most productive and thereby able to provide support and care for others, including their children. Consequently, if a parent falls ill with the disease at this age it has negative implications on the private incentives to invest in education. Not only on the demand side are there effects, but also on the supply side of education; whereby teachers may fall ill with the disease. Schultz (2003) identifies that each year several percent of the schoolteachers are dying of AIDS in severely affect SSA countries such as Malawi. Consequently this will result in a growing scarcity of teachers, and in order for the government to attract replacements in this area; they will need to offer a higher salary.
If may be apparent however that from the attainment of education, more knowledge about the disease will be spread to a wider audience, helping to reduce the spreading of HIV and AIDS. Schultz (2003) identifies that if negative externalities can be confidently attributed to the dissemination of information with regard to both the characteristics of a communicable disease and the individuals own infection status, information should be provided to as many people as possible. If this is not the case then more educated and richer individuals will have an advantage due to knowledge about the disease. In this scenario public subsidies should be provided to spread information about HIV and AIDS.
(i) Policy application – Uganda
Many SSA governments implemented the abolishment of school tuition for public primary education due to concern that UPE will not be attained by 2015. Uganda was one of the first SSA countries to adopt the UPE policy in 1997 and saw a vigorous increase in primary enrolment from 2.8 million in 1997 to 7.6 million in 2004 (UNESCO, 2000). The UPE policy removed tuition fees for public primary education, providing improved access to primary education for children of poor households. Such a reduction in the direct private costs of education contributed to equality and equity in education (Nishimura et al, 2005).
Before such an introduction, student’s families paid more than 80 percent of the total direct costs of primary education with the government paying the rest. After the introduction of UPE in Uganda, the role of the government increased to provide more resources and ensure the quality and equity of education, which was supported by the mobilised resources through the Heavily Indebted Poor Countries (HIPC) initiative along with other donor funds. The share of GDP spent on education increased from 1.6 to 3.8 percent – with the primary sector expenditure increasing from 40 percent in 1996 to 65 percent in 2004. This enabled an increase in the supply of teachers by 41 percent, alongside the erection of new schools increasing by the same amount.
Nishimura et al (2005) analysis showed the positive effect UPE had on the poor, especially girls, in helping improve access to schools which contributed to the access and equity of education as a pro-poor policy. However, Nishimura et al (2005) revealed from their studies that more than just the one demand-side policy intervention of reducing school tuitions in primary education to achieve UPE was needed. Internal inefficiency – such as delayed enrolment and repetition still remains a major problem in Uganda, inhibiting UPE to be achieved. Also due to extremely limited resources, achievement of expanding educational opportunities to all children in poor households has not been achieved – especially to those in rural areas. Such an inequitable distribution highlights that proper supply side policy interventions – such as providing enough school facilities in the nearby neighbourhood; or demand side policy interventions – such as improving parental awareness, should pursue the elimination of school fees. Another supply side intervention aimed to help achieve UPE by 2015 is the school construction sites in remote areas in order to retain teachers in such areas. This should help increase the expected benefits of obtaining education and also exceed the total costs of the direct and indirect costs of education.
Schultz (2003) extends these thoughts with the use of the HCT to analyse education. He concludes that the design of the educational policy should take into account both the private demand for schooling and the public supply of schooling. He continues to inform that if the private returns to schooling are low and families do not demand more schooling for their children, an expansion of public expenditures on education may not increase enrolment, and building new schools is not a solution. There needs to be coordination between supply and demand to forecast school utilisation rates and to anticipate the private and social returns and forecast enrolment rates.
Chapter 5: Conclusion
As laid out by the United Nations the second MDG aims at achieving universal primary education so that boys and girls alike are able to attend and complete primary school. The benefits of receiving at least five years of primary school have been evaluated from the private, social and macro level, providing sound economic reasoning’s to justify the expenditure needed in the educational sector. However, due to inadequate resources, financial constraints, lack of focus and accountability with policy frameworks within SSA and many other low-income countries, the attainment of UPE doesn’t seem achievable by 2015.
It is fair to say that one reason aggravating these shortfalls has been caused by the recent global and financial crisis. From this, various policy proposals have been erected with the aim of achieving UPE. One apparent successor was the removal of uniform fees which resulted in improved demand for education. Furthermore, SSA countries need to ensure that there are enough teachers and class rooms to meet the demand for education, given recent experiences of increases in enrolment rates. Alongside this there needs to be sufficient coordination between supply and demand policy proposals to forecast school utilisation rates, and to anticipate the private and social returns to forecast enrolment rates.
Although identified in this paper that some SSA countries are seriously off track to achieving UPE by 2015, it is still possible that further advancements can be made to help these countries escape the issues of chronic poverty. The crucial question now depends on how quickly SSA countries can transform their pace of change to try and meet the target of UPE. It is clear that these developing countries need additional support of external finance in the form of foreign aid, to provide governments with the resources to fulfil supply and demand constraints.
There does however remain an important issue about the distribution of public provision – whether the government should concentrate resources in expanding education in SSA or rather to improve the quality of educational structures for existing studentsThe former is the requirement to achieve UPE but the latter highlights an important issue; that although a greater mass of children will be receiving education, it does not specify the quality and usefulness of obtaining education – whereby productivity may not be increased at all.
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