Economic Issues in the Education Sector

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Economic Issues in theEducation Sector

• Harry Anthony Patrinos
• Human Development Network

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Education as an Industry

• Employment of teachers 5 of labor force
• Millions of pupils
• Spending 2 trillion worldwide
• 1/3 of global market in USA 15 in LDCs
• Education spending as investment
• Human Capital

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Enrolment (millions) in Education, 1997

UNESCO World Education Report 2000
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Education Expenditures( of GNP)

• China 2.3
• India 3.2
• Brazil 5.1
• United States 5.4
• Denmark 8.1
• France 6.0
• World 4.8
• Sub-Saharan Africa 4.1

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Wages Relative to Wageswith No Schooling
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5
4
3
2
1
0
Indonesia
Peru
USA
Thailand
Cote dIvoire
Slovenia
Secondary
Post-secondary
Primary
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Education Originally All Private

• Supply and Finance
• Private tutors
• Religious institutions
• Ancient universities (e.g., Oxford)
• No government (e.g., Somalia)
• No public schools (e.g. Mali communities)

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And Why Not?

• Families and individuals demand education
• Tutors and institutions provide it
• The market works, or does it?
• Why should the government intervene?

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Because.Market Failure

• Equity
• Externalities
• Capital market imperfections
• Information asymmetries

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Market Failure Equity

• The Middle Class and the Poor
• Girls
• Notion of education as human right
• Notion of compulsory education

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Market Failure Externalities

• Minimum levels of literacy for growth
• Science and technology?
• Health and fertility effects
• Spillover effects

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Child Mortality by Education of Mother
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Market Failure Capital Market Imperfections

• Education is long-term business, financial
  institutions unwilling to take risk
• Difficult for suppliers to borrow against future
  revenue stream
• Difficult for students to borrow against future
  income stream

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Market Failure Information Asymmetries

• Suppliers of education have more information than
  purchasers (students)
• Result students may end up in institutions other
  than those they would have selected with better
  information

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ButGovernment Failure

• Equity
• External Efficiency
• Internal Efficiency
• Sustainable finance

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Disparities between Girls and Boys Enrollment

• 1990, avg 6-year-old girl in low, mid-income
  country 7.7 yrs of school up from 6.7 yrs, 1980
• Gap between boys and girls widest in S. Asia
  1990, girl could expect 6 yrs of school boy, 8.9
• Middle East girl 8.6 years, boy 10.7

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Distribution of Expenditures by Income Quintile
Poor get less education
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Government Failure External Efficiency

• Over-subsidized higher education
• In Africa, spending per student in higher
  education is 44x that per primary student
• Continuing high proportion of secondary education
  that is supply-driven vocational education
• Tertiary more costly than primary

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Government Failure Sustainable Finance

• Increasingly difficult to meet demand for
  education, especially where little economic
  growth (e.g. Africa)
• Aid can help, but not sustainable

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Service Delivery

• Public schools lack spur for efficiency
• Why?
• Operated by Government
• No competition
• Teachers paid according to experience and
  education, not performance
• Schools closed or opened depending on
  demographics, not how well they perform

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So What is the Answer?

• Market has strengths and weaknesses (failure)
• Government has strengths and weaknesses
  (failure)

• Draw on strengths of both market and government
• Minimize weaknesses of both
• Context-specific

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Emerging Role of Government

• Draw on Market Strengths
• Matching of Demand and Supply
• Competition
• Willingness to pay

• Draw on Government Strengths
• Broad National Vision
• Capacity to redistribute and promote equity
• Information

• Avoid Market Failure
• Promote Equity
• Achieve Externalities
• Overcome Capital Market Imperfections
• Overcome Information Asymmetries

• Avoid Government Failure
• Promote Equity
• Avoid Inefficiency
• Achieve Sustainable Finance

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Financing and Provision of Education
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Cost-Effectiveness Analysisof Inputs for
Portuguese Achievement, Brazil
Achievement change by input (coefficients) 3.513
-5.650 7.228 8.969 6.403 4.703
4.864 0.055 -0.160 3.594 3.17
7 2.383
Achievement gains per US spent 1.94 - 0.82 0.56 3
.88 2.67 1.43 0.14 - 1.95 1.44 0.43
Input Water School furniture School
facilities Hardware Textbook usage Writing
materials Software Teacher salary Training Logos
II 4 year primary 3 years secondary
Cost (US) 1.81 5.45 8.80
16.06 1.65 1.76 3.41 0.39 2.50 1.84 2.21 5
.55
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Education Expenditure and Achievement
TIMSS Ranking
Maths
Science
United States Switzerland Austria Canada Norway De
nmark Japan Netherlands New Zealand Spain Czech
Rep. Korea Hungary
28 17 8 25 12 8 18 18 26 20 27 34 3 3
9 6 24 22 31 27 6 2 2 4 14 9
0
2,000
4,000
6,000
8,000
Expenditure/student
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Determinants of School Enrollment, Bolivia
Primary
Secondary
Basico
Intermedio
Urban
Rural
Urban
Urban
Rural
Rural
Mothers Education




Fathers Education





Age





Gender (Male)





Household Size
-
Recent Migration
-
-
(Spanish
Language




speaking only)
Household Income


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Vietnam Expenditure Scenarios
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Recommendations

• Target subsidies to basic and to poor
• Cost recovery in tertiary
• Go slow with vocational
• Reduce dropout and repetition

• Quality enhancement
• monitor learning
• increase instructional hours
• teacher upgrading and regular in-service trng
• increase govt spending on textbooks and learning
  materials

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Ethiopia Sector Investment Program

• GER 25
• Target 50 (from 3.1 to 7 million students)
• Distance Build new schools close to students,
  especially in remote, rural areas
• 2,500 primary schools will be built
• 5,000 will be upgraded
• 5,000 will be renovated

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School Buildings

• Technological Alternatives
• Mutually exclusive alternatives
• Lower present value
• Opportunity cost of capital

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Analysis of Alternatives
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Analysis of Alternatives
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Messages

• Investigate the market for education
• Demand and supply
• Separate finance and provision
• Role of private, NGO sector
• New roles for
• government, students, families, communities