Can Cost-Benefit Analysis Guide Education Policy in Developing Countries? (pdf, 170KB)
Emmanuel Jimenez, Harry Anthony Patrinos. 2008
Cost-benefit analysis in education is an important tool in the economists' arsenal. However, it is essential that research, especially on the social benefits of education, make further progress to make cost-benefit more analysis. There is a need for more research on the effects of policy interventions on outcomes beyond access to a year in school and what they earn as a result, such as on what children actually learn. Such research should focus on ensuring that the interventions are attributable to outcomes. Nevertheless, it is worthwhile to go through the discipline of noting the benefits and costs, even if social rates of return cannot be calculated robustly.
Education Quality and Economic Growth (pdf, 386KB)
Eric A. Hanushek, Ludger Wößmann. 2007
This study aims to contribute to the World Bank's education agenda by communicating research findings on the impact of education quality on economic growth. The authors show that indeed the quality of education, rather than mere access to education, is what impacts economic growth. This report explains that differences in learning achievements matter more in explaining cross-country differences in productivity growth than differences in the average number of years of schooling or in enrollment rates. A development-effective educational strategy should thus focus not only on sending more children to school, as the second Millennium Development Goal is often interpreted, but also on maintaining or enhancing the quality of schooling.
Research: Education and Economic Growth. Education next 2008 No.2
By Eric Hanushek, Dean T. Jamison, Eliot A. Jamison and Ludger Woessmann
Estimating the Returns to Education: Accounting for Heterogeneity in Ability
Harry Patrinos, Cris Ridao-Cano, Chris Sakellariou. 2006
Typically estimates of the benefits of education investments show average private rates of return for the average individual. The average may not be useful for policy. An examination of the distribution of the returns across individuals is needed. The few studies that have examined these patterns focus on high-income countries, showing investments to be more profitable at the top of the income distribution. The implication is that investments may increase inequality. Extending the analysis to 16 East Asian and Latin American countries the authors observe mixed evidence in middle-income countries and decreasing returns in low-income countries. Such differences between countries could be due to more job mobility in industrial countries, scarcity of skills, or differential exposure to market forces.
Tools for Education Policy Analysis (pdf, 1.5MB)
Alain Mingat, Jee-Peng Tan, and Shobhana Sosale. 2003
This hands-on, interactive guide to evaluating and revamping education policy is designed to help policymakers in low-income countries identify weakness and make the most efficient use of scarce education resources. Education specialist in the developed world will also find this guide to be an invaluable tool for analyzing priorities and arriving at cost-effective solutions. The out-growth of training workshops held at the World Bank, this book and CD-ROM present relevant policy problems and engage the user in a search for effective education-service delivery options. Users can, moreover, plug in their own data and apply the statistical models to the specific challenges of their own educational systems. Both a self-paced learning guide and a practical assessment tool, this publication will be of interest to policymakers, as well as education researches, teachers, and students.
Returns to Investment in Education: A Further Update (pdf, 1.46MB)
George Psacharopoulos and Harry Anthony Patrinos. 2002
Returns to investment in education based on human capital theory have been estimated since the late 1950s. In the 40-plus year history of estimates of returns to investment in education, there have been several reviews of the empirical results in attempts to establish patterns. Many more estimates from a wide variety of countries, including over time evidence, and estimates based on new econometric techniques, reaffirm the importance of human capital theory. This paper reviews and presents the latest estimates and patterns as found in the literature at the turn of the century. However, because the availability of rate of return estimates has grown exponentially, we include a new section on the need for selectivity in comparing returns to investment in education and establishing related patterns.
Efficiency and Equity in Schools around the World (pdf, 744KB)
Eric A. Hanushek and Javier A. Luque. 2001
Attention to the quality of human capital in different countries naturally leads to concerns about how school policies relate to student performance. The data from the Third International Mathematics and Science Study (TIMSS) provide a way of comparing performance in different schooling systems. The results of analyses of educational production functions within a range of developed and developing countries show general problems with the efficiency of resource usage similar to those found previously in the United States. These effects do not appear to be dictated by variations related to income level of the country or level of resources in the schools. Neither do they appear to be determined by school policies that involve compensatory application of resources. The conventional view that school resources are relatively more important in poor countries also fails to be supported.
Returns to Quality of Education (pdf, 157KB)
Julian R. Betts. 2000
This paper provides a literature review on the economics of school quality. It includes a concise analysis of the main trends and findings in the research that has been conducted over the last several years worldwide. Policy implications and priorities for future research are also identified. The literature under review pertains to the United States and other developed countries, as well as to developing countries.
Economic Analysis of World Bank Education Projects and Project Outcomes (pdf, 134KB)
Ayesha Yaqub Vawda, Peter Moock, J. Price Gittinger, and Harry Anthony Patrinos
Research reported in this paper tests the hypothesis that World Bank education projects for which the project appraisal documents are judged "good" have a higher probability of leading to successful outcomes than projects for which the appraisals are judged "poor." The research draws on project document evaluations carried out between 1993 and 1998. Analysis shows a strong relationship between the quality of cost-benefit and cost-effectiveness analysis and the quality of project outcomes. Economic analysis of projects is a tool for weeding out potentially poor investments and select potentially worthwhile ones. The economic analysis can be used to select among alternative projects or to redesign project components so that they yield more and produce better outcomes. Good practice education projects require good economic analysis -- analysis of demand, of the counterfactual private sector supply, of the project’s fiscal impact, of lending’s fungibility -- and strong education sector analysis before project design.
Why Education and Health Are More Different than Alike (pdf, 35KB)
Claudio de Moura Castro and Philip Musgrove
Education and health—or more narrowly, schooling and health care—are often lumped together as the major components of something called “the social sector”. There are some important similarities, but they are outweighed by greater and more significant differences. Most of these differences are intrinsic to knowledge and learning or to disease and its treatment; some other distinctions arise from how society organizes schooling and medical care. The differences matter for economic consequences, day-to-day management, and reform efforts in each sector. Treating the two sectors as highly comparable is both sloppy thinking and conducive to bad public policy.
Education and Earnings in a Transition Economy (Vietnam) (pdf, 64KB)
Peter R. Moock, Harry Anthony Patrinos, and Meera Venkataraman. 1998
One study shows that as Vietnam liberalizes its labor market, private rates of return to primary and higher education are already relatively high-and could be higher yet with greater cost recovery and lower costs (a more efficient system). The transition from a centrally planned to a market economy is likely to have a strong impact on the labor market, on relative earnings, and on returns to education.
Major economic reforms in Vietnam since 1986 (the policy known as Doi Moi) have included a number of measures to liberalize the labor market. It is too soon to assess the full impact of these reforms, but Moock, Patrinos, and Venkataraman analyze the returns to education, on the basis of earnings in 1992-3 (collected in the first Vietnam Living Standards Survey). This represents one of the first countrywide analyses of the monetary benefits of schooling in Vietnam at a time when the labor market was in transition. On average, the estimated rates of returns are still relatively low, which is to be expected, since salary reforms were not introduced until 1993. Average private rates of return to primary education (13 percent) and university education (11 percent) are higher than those to secondary and vocational education (only 4 to 5 percent). Returns to higher education are slightly higher for women (12 percent) than for men (10 percent). Evidence from other transition economies suggests that returns are likely to increase as reforms in the labor market take full effect. The results support this hypothesis: Returns for younger Vietnamese workers (14 percent) are considerably higher than for older workers (only 4 percent).
Implications for policymaking:
It is important to monitor future earnings and trends in the labor market, as updates of this analysis could provide more robust estimates of the transition?s effects on earnings and returns to education.
At a time when the Vietnamese government is reassessing its pricing policy, the fact that private rates of return to higher education are relatively high suggests the potential for greater cost recovery.
Efforts to improve efficiency in secondary and higher education could increase the rate of return by lowering costs.
Beyond Rate of Return: Reorienting Project Appraisal (pdf, 224KB)
Shantayanan Devarajan, Lyn Squire, Sethaput Suthiwart-Narueput. 1997
Traditional approaches to project appraisal fail in practice to address two fundamental questions: whether a project belongs in the public or the private sector; and what effect any external assistance associated with the project has on the country's development. The first issue is of general interest to both national policymakers and international donors. If the government provides a good or service that would otherwise have been provided by the private sector, the net contribution of the public project could be low. The second issue is of particular concern to donors. If financial resources are fungible, the project being appraised might well have been undertaken without external financing. In this case, donor funds are actually financing some other, unappraised project. Both cases argue for a shift in the emphasis of project evaluation away from a concern with precise rate-of-return calculations and toward broader sectoral analyses and public expenditure reviews. In this context, three areas critical for proper project appraisal include a consideration of the rationale for public intervention, the fiscal impact of the project, and the fungibility of external assistance.
Interpreting the Coefficient of Schooling in the Human Capital Earnings Function (pdf, 67KB)
Barry R. Chiswick. 1997
The "human capital earnings function" (HCEF) has become a fundamental tool in research on earnings, wages and incomes in developed and developing economies. It is an accepted procedure in litigation involving earnings, such as cases involving the value of lost earnings due to injury, death or discrimination It is also frequently used to make educational policy decisions based onestimates of the rate of return from schooling
The basic feature of the HCEF is that it relates the natural logarithm of earnings to investments in human capital measured in time, such as years of schooling and years of post-school work experience.
Handbook on Economic Analysis of Investment Operations (pdf, 11.83MB)
World Bank. 1998
This handbook aims at providing staff with analytical tools, solidly grounded in economic theory, and to make the Bank ' s approach to economic evaluation of projects, more transparent. It offers integrated financial, economic, and fiscal analysis, allowing analysts, and decision makers to attain various perspectives, i.e., stakeholders, implementing agencies, and society in general. The first part of the handbook, provide economic, and risk analysis tools, discussing issues relevant to project evaluation. While financial analysis relies on prices faced by implementing agencies, economic analysis is based on opportunity costs to society. The second part, the Technical Annex, briefly discusses discounting techniques, with a focus on the theoretical underpinnings of the approach for assessing social opportunity costs. It recommends eliminating the inclusion of fiscal, and poverty weights in the calculation of the rate of return, though the project ' s distributional implications should be indicated; using shadow prices selectively; continuing the use of 10-12 percent as the standard discount rate; and, improving risk analysis.
The Profitability of Investment in Education: Concepts and Methods (pdf, 123KB)
George Psacharopoulos. 1995
This paper reviews the basic concept of the profitability of investment in education and enumerates the various techniques that have been used in the literature to estimate the rate of return to investment in education. The various estimating techniques are illustrated by using household survey data from Venezuela and Guatemala. The paper also reviews the controversies that have appeared in the literature regarding the use of rates of return to investment in education for designing educational policy.