Economics of Education

1. Economics of EducationEconomics of Education
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Sener SalciSener Salci
Department of Economics – QueenDepartment of Economics – Queen’s University’s University
sener.salci@gmail.com / ssalci@econ.queensu.casener.salci@gmail.com / ssalci@econ.queensu.ca

2. Outline of Talk
1. Introduction
2. Economics of Education
Key Issues (in the context of less and developing world countries)
1. Economic Evaluation of Education Projects: Cost-
Benefit Analysis Approach (math)
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3. Introduction
• Human capital: Education and Health
• Returns to education are substantial and larger in poor countries
than in rich countries (Psacharopoulos and Patrinos, 2002)
• Positive (and high) correlation between educational attainment
and productivity hence economic growth (Barro 1991; Barro and
Salai Martin, 1995; Bils and Klenow, 2002)
• Increase in the relative price of teachers in poor countries, or in
countries with low education levels, tend to raise the wages paid
to educated people (Banerjee, 2004)
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4. 4
Table 2. Returns to Investment in Education by Level,
Latest Available Year (percent)
Country Primary Secondary Higher
Argentina 8.4 7.1 7.6
Bolivia 9.3 7.3 13.1
Botswana 42 41 15
Brazil 35.6 5.1 21.4
Chile 8.1 11.1 14
Colombia 20 11.4 14
Costa Rica 11.2 14.4 9
Ecuador 14.7 12.7 9.9
El Salvador 16.4 13.3 8
Ethiopia 20.3 18.7 9.7
Ghana 18 13 16.5
Mexico 19 9.6 12.9
South Africa 22.1 17.7 11.8
Philippines 13.3 8.9 10.5
Zimbabwe 11.2 47.6 -4.3
Introduction
Returns to Investment in Education by Level, Latest Available Year
(%)

5. 5
Introduction
Source: Psacharopoulos G., and Patrinos, H.A. (2002, p.15)

6. Introduction
• Full returns of schooling take into account the variation in the
cost of schooling and years of schooling.
• Direct cost of education increase with level of schooling.
• There are many other forms of societal benefits including crime
reduction, social cohesion, income distribution, possibly fertility
reduction (Haveman and Wolfe, 1984), but it is either difficult to
monetize them or these benefits cannot be attributed to
education alone / response of these benefits to education (?)
• Children, if they are kept away from school and work, earn less
than adults. 6

7. Key Issues
• What are the way(s) to SEND children to
school?
• How can we KEEP children at school?
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8. What are the way(s) to SEND children to school?
• Randomized trial in rural Mexico in which
approximately 500 communities are assigned
experiment and control group (Schultz, 2004)
– Conditional cash transfer programs
– School enrollment increase considerably by 3.6% in the
communities that are part of the program
– Highest enrollment in primary and secondary school age
children, and larger positive impact on girls
– Outcome: Financial incentives [conditional] in the form of
‘cash’ works
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9. How can we KEEP children at school?
• Randomized trial in rural Kenya in which 14 schools
are selected for the experiment Kremer, Moulin and
Namunyu (2003)
– NGO provided uniforms, textbooks, and classroom
construction to seven schools randomly
– Dropouts fell considerably by 15% in the schools that
received the program
– Outcome: Financial incentives in the form of free uniforms,
textbooks increase in participation.
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10. Social and Private Rate of Return on
Education - LAC
Private and social rate of return on education, including LAC countries, by degree and
gender is available from Psacharopoulos and Patrinos (2002).
http://www-
wds.worldbank.org/servlet/WDSContentServer/WDSP/IB/2002/09/27/000094946_020
91705491654/Rendered/PDF/multi0page.pdf
Banerjee and Duflo (2005) update data in their investigation of whether the return to
schooling is higher in poorer countries.
http://www.sciencedirect.com/science/article/pii/S1574068405010075
Learning Materials and Projects, visit J-PAL at
https://www.povertyactionlab.org/education
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11. Assessing Feasibility of a higher education
project using Rate of Return and CBA
Framework: Case of Mauritius
(Ref. Pedro Belli, 1998)
Note: Numbers are replicated from the study, however, the numerical results are slightly different
than presented by Belli (1998).
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12. Evaluation
• Full returns of schooling take into account the variation in the
cost of schooling and years of schooling.
• Direct cost of education increase with level of schooling, and
tuition fees vary across departments (Economics, Law,
Commerce etc.) and years of schooling (e.g. Economics: 3 years,
Law: 6 years, in Canada).
• Annual incremental costs and incremental benefits are
discounted to arrive their net present values as of today.
• Private returns and societal returns are not the same.
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13. Age-Earnings Profiles of High School and University
Graduates
Source: Belli, 2001.
Remark: Heterogeneity in costs and benefits, therefore net returns on education
among graduates.
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14. Age-Earnings Profiles of High School and University
Graduates
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15. Feasibility of Higher Education Project in
Mauritius
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16. a. Social cost-benefit earning
profile from Engineering Degree
b. Private cost-benefit earning
profile from Engineering Degree
Rate of Return from Education
Private vs. Societal
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17. Results from Rate of Return from Education
Private vs. Societal
Discount Rate: 10%
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18. Distribution of Benefits/Costs from Higher
Education Project
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19. Results from CBA Analysis
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