11

Conclusions

W1Jorld Bank lending for education and training rose from $9 million Win 1963 to nearly $1
billion in 1983. Although total spending represents less than 10 percent of the Bank's total
investment in development, since the early 1960s investment in education and in project-related
training has had a central role in the Bank's strategy of human development and the attack on
poverty in the developing world. The Bank recognized in 1963 that spending on education is not
simply consumption but is investment in human capital, and that education is not only a basic
human right but also a means of enhancing the productive capacity of developing countries and
increasing the profitability of investment in physical capital and basic infrastructure. This stance
has been amply justified during the past twenty years, both by the practical experience of Bank-
financed projects and by research. Attempts to measure the contribution of education to
economic growth (see chapter 2) suggest that a significant share of the growth of national
income in developing countries is due to the education of the labor force, and that the
contribution is much greater in Africa, where the stock of human capital is relatively small, than
in Europe or Latin America. Not only do developing countries with the fastest rate of economic
growth have higher rates of literacy than other countries at the same income level (Hicks 1980),
but this is more likely to be due to the effect of education on income than vice versa, if we allow
for the simultaneous effect of various factors (Wheeler 1980). The results of such global
comparisons are confirmed by microstudies that have examined the direct contribution of
education to farmer productivity in Nepal and Thailand (Jamison and Lau, 1982), which show
that education does indeed help to raise incomes and increase levels of production. Unlike the
early research on the economic contribution of education, such evidence (see chapter 3) does
not depend on wages and salaries as a measure of contributions to output, but is based on direct
physical measurement of crop yields. The research in this area has also demonstrated that
education helps to increase the yield from investment in new agricultural techniques, improved
irrigation, or the use of new seeds and chemical fertilizers. Farmers in Thailand, for example,
are much more likely to use chemical inputs if they have had four years of primary schooling.
The complementary nature of investment in education and investment in agriculture or rural
development strengthens the case for investing in basic education as a way of raising the
incomes of the poor. According to a recent analysis of fifty-two Bank-financed agricultural
projects (Mingat 1984), a strong link exists between the size of the training component and the
economic success of the project. The External Advisory Panel on Education reporting to the
World Bank in 1978 therefore concluded that the Bank has been correct in making substantial
loans for the direct purpose of expanding and improving educational opportunities. The panel
also agreed that education and training should not be regarded as a sector of development
parallel with agriculture or industry, but should be considered essential elements of all
organized efforts to speed up development.

Lessons from Experience

Thus the first lesson from the Bank's experience of investment in education and research on the
contribution of education to development is that educational investment is productive, and that it
does contribute directly to the growth and employment goals of developing countries. It also
contributes indirectly by improving levels of health and life expectancy and by reducing fertility.
There is now ample evidence that schooling fosters the type of behavioral change that is
conducive to economic growth. It is also a vitally important complement to physical investment
projects. Not only does investment in highways, power plants, irrigation, or industrial projects
give rise to increased demand for both technical skills and general education, but such
investments are more likely to yield high returns if accompanied or preceded by educational
investment. The second general lesson from two decades of experience of educational investment
is that such investment must be broad rather than narrowly specialized, and that basic
education, including both primary and nonformal education, is just as important for
development as highlevel technical education. The growing body of evidence in support of this
conclusion has been summarized by the Bank's external advisory panel (World Bank 1978, p. 5):

General education is at least as important to development objectives as specific skill training

and is, in fact, a necessary complement to the latter . .. the complementarity of general education
and skill training is essentially related to the rapid changes being experienced by those who live
in developing countries. In such a world a combination of general education and skill training is
necessary to qualify persons to be able to adapt to change and to take part in it usefully.
The shift in Bank lending away from bricks and mortar and hardware to improvements in
quality-for example, through curriculum development or the provision of textbooks-not only
reflects the growing concern in developing countries about qualitative issues as well as
quantitative expansion, but is also consonant with the evidence that the returns to qualitative
improvements may be larger than the returns to quantitative expansion (Behrman and Birdsall
1983). That such a shift was necessary is borne out by the evidence that the quality of schools is
vitally important. Contrary to the pessimism engendered by research in the United States, where
the quality of schooling appears to be less important than family background in determining
standards of achievement, the quality of school inputs in developing countries greatly influences
the quality of output. Indeed, school factors are much more important than socioeconomic
factors in determining levels of achievement and learning in developing countries, whereas
family background appears to play a more important role in more advanced countries
(Heyneman and Loxley 1983). The answer to the question "Is it worth investing in education?" is
therefore resoundingly positive. The question "Is it more profitable to invest in human skills and
capacities or in physical capital?" is misguided, however, since it assumes that investment in
people and investment in machines are alternatives. Investment choices should be concerned
with the question of how rather than whether education can contribute to growth. Their proper
concern is which particular combinations of general and technical education, which subject
balance, which teaching methods, and which distribution of resources and opportunities for
schooling would allow education to have the maximum impact on development and would best
complement investment in physical capital and infrastructure. These are the questions that have
been discussed in this book, but, as we have seen, there are no simple answers. Every investment
proposal must therefore be evaluated with great care to determine its internal and external
efficiency, its effect on the distribution of educational opportunities and the implications for
equity, and its possible impact on other sectors. Thus the remainder of this chapter does not
recommend simple solutions or techniques to guide investment choices, but provides a brief
summary of the main issues that must be taken into account before an educational investment is
decided upon.

The External Efficiency of Educational Investment

The external efficiency of educational investment is usually judged by two criteria:

* The extent to which schools, universities, or training institutions provide the necessary skills
for the smooth running of the economy, and the extent to which school-leavers or graduates are
absorbed into the labor market, find the jobs and the earnings they expect, and are able to use
their skills in employment * The balance between the costs of investment in education and the
economic benefits as measured by the higher productivity of educated workers, that is, by the
social rate of return.

The early emphasis both in the World Bank and in developing countries on methods of
forecasting skilled manpower requirements has given way to careful analysis of manpower
patterns, including the way educated workers are used in the labor market. As a result, more
emphasis is now placed on tracer studies, which follow the progress of the educated in the
transition from school to work, than on methods of forecasting-which assume rigid relationships
between manpower and output levels-or firm-based studies of the modern sector-which exclude
the rural labor market, the self-employed, and the unemployed. Tracer studies of whole cohorts
of graduates have been used to record the length of time taken to find a first job, and the success
in finding a job has become one criterion of the success of an education project in meeting
broad social and economic objectives. In a tracer study of secondary-school graduates in
Indonesia (Clark 1983), for example, much of the educated unemployment has been shown to
consist of an extended period of job search; virtually all secondary-school graduates eventually
find employment and obtain higher earnings than those without secondary schooling.
Consequently, the fact that secondary-school leavers may experience unemployment does not
necessarily indicate an oversupply of secondary education. Such an analysis of labor markets in
developing countries should be included in the analysis of manpower patterns and trends, and
the latter should be a continuous process rather than a forecasting exercise. This process could
well include a cost-benefit analysis of the economic returns to education. Despite the well-known
methodological objections to costbenefit analysis (see chapter 3), investment appraisal should
take place in the framework of a systematic comparison of the costs of different types or levels of
education and the financial benefits measured in terms of productivity or earnings differentials.
The World Bank's review of such analysis (Psacharopoulos 1981) leads to a number of general
conclusions:
* The social returns to investment in education are still substantial, particularly in developing
countries with a low stock of human capital. * The returns to primary education are higher
relative to highly specialized secondary or higher education, which has very high costs in
developing countries but modest benefits with respect to lifetime earnings. * Since the private
returns are considerably higher than the social returns, education is still highly profitable for
families and for individual students, and therefore the question is how educational investment
should be financed.

Such conclusions do not, of course, provide an unambiguous guide for investment decisions.
Rather, they identify the factors that should influence the choice of investments, and they
emphasize the need for further research, for example, into the precise ways in which education
increases the productivity of workers. World Bank research on the influence of education on
farmer efficiency has pointed to the importance of general literacy and numeracy in determining
the choice of agricultural techniques, for example, but detailed studies of the precise effects of
education on productivity of workers in industrialized sectors and in self-employment are still
lacking. Since the social returns to education depend on the relation between costs and financial
benefits, any policies that improve the internal efficiency of education and help to reduce costs,
or that help to recover costs and shift some of the burden of financing educational investment
from public to private sources, will increase the profitability of education as a social investment
and make the distribution of benefits and the sharing of costs more equitable.

The Internal Efficiency of Education

Extensive research on the relation between school inputs and the level of pupil or student
achievement (that is, the relation between input and output in educational institutions) has
shown that student performance in developing countries is largely determined by the quality of
school inputs and not by external socioeconomic factors. That means it is possible to improve
internal efficiency by such measures as providing students with textbooks or improving teacher
quality. Evidence from Chile, Peru, the Philippines, and Uganda (Heyneman, Farrell, and
Sepulveda-Stuardo 1981; Heyneman, Jamison, and Montenegro 1984) points to the importance
of school textbooks and shows that improving the availability of textbooks may be one of the
simplest and most cost-effective ways of improving school efficiency. The quality of teachers is
another vital determinant of pupil performance (Husen, Saha, and Noonan 1978), and it is
generally more important than class size (Haddad 1978). This finding raises the question of the
cost-effectiveness of alternative methods of teacher training. In-service training and upgrading
of teachers may often be a quicker and more efficient way to improve teacher quality than
enlarging initial training capacity. Extensive analysis of distance-teaching methods (Perraton
1982) has demonstrated that radio, and in some cases television, may increase the internal
efficiency of education by producing lower rates of wastage and repetition and lower unit costs.
The costs of this new educational technology have often been underestimated, however.
Furthermore, evaluations of new media may be subject to bias since the advocates of new
technologies tend to give them the benefit of the doubt. This is not to suggest that new media do
not have an important part to play in improving the internal efficiency of education, but simply
that all alternative investment projects must be subjected to careful costeffectiveness analysis.

The Costs and Financing of Education

Overall, the rapid increase in educational expenditure that took place in the 1960s and 1970s
has slowed down in both developed and developing countries, whereas the pressure for
expansion and qualitative improvements continues unabated. Thus an urgent need has arisen for
a reappraisal of both the patterns of costs and the financing of education. Because the costs for
a university student in an advanced country average three to five times as much a year as for a
primary-school pupil, whereas in developing countries the ratio is 20:1, 40:1, 80:1, or even
100:1, poor countries that invest heavily in higher education must shoulder an enormous
burden. When unit costs of education are compared with national income, the financial burden
is even heavier. Despite the growing concern about this burden, there is no simple way to reduce
costs. Only the most careful scrutiny of costs in relation to what is achieved will ensure that
developing countries get the best value from scarce resources. In addition to seeking ways to
reduce the costs of education, many countries are attempting to shift more of the costs from
public to private sources. Indeed, more attention should be given to the various methods of cost
recovery, including the use of fees for tuition or for meals and accommodation, student loans in
place of scholarships or grants, and contributions from employers to help finance vocational
education and training. These changes will not, by themselves, solve the financial constraints
limiting educational investment, but they may help governments finance expansion or
improvements that at present cannot be supported because of competing claims on public funds.
Up to now, such shifts from public to private finance have by and large been resisted on the
grounds of equity, but this opposition may not be justified (Mingat and Psacharopoulos 1985).

Equity Implications of Educational Investment

The equity implications of investment policy have attracted increasing attention since the early
1970s. As a result, it is now widely believed that educational investment must be evaluated on
the basis of the following two criteria: the distribution of educational opportunities and facilities
between different social groups, geographical areas, or rural and urban populations; and the
distribution of financial burdens and benefits of education. The rapid expansion of educational
investment in developing countries in the 1960s and 1970s tended to benefit higher-income
families and urban rather than rural communities and thus may have widened rather than
reduced income disparities. The problem is that educational investment cannot, by itself,
equalize incomes and employment opportunities. Nevertheless, it can help to raise the incomes of
the poor if attention is paid to the social and geographical distribution of educational
investment. Thus an effort must be made to increase the quality as well as the quantity of
educational provision for the poor, for rural communities, for females, and for all who at present
are underrepresented in education. Recent World Bank analysis of the equity implications of
alternative investment policies suggests that fees for tuition or for food and accommodation may,
contrary to traditional beliefs, actually improve the equity of educational finance if the public
funds saved by this means are then used to increase selective subsidies for the poor or to
increase educational provision or the quality of schooling for disadvantaged groups. The
introduction of student loans, which would reduce the extremely high level of subsidy for
university education in many developing countries, could also have a positive distributional
impact, since at present the high-income students are the ones most likely to benefit from
education subsidies. The introduction of student loans, which a recent study (Woodhall 1983)
has shown to be feasible in developing countries, could therefore free public funds for greater
expansion of primary education, which may well achieve both equity and efficiency objectives.
Although some policies may contribute to both equity and efficiency objectives, in some cases
these goals may conflict, and it may be necessary to consider tradeoffs between efficiency and
equity.

Links between Investment in Education and Other Sectors

The World Bank has provided considerable support for the training components associated with
investments in physical infrastructure and in sectors other than education (such as transport,
agriculture, mining, fuel and power). In the past, such investments in project-related training
have been treated as relatively minor aspects of investment projects, but experience has shown
that the training component not only plays an important part in determining the profitability of
investment in physical capital, but it may also affect the general educational infrastructure and
produce benefits that spill over into other sectors. In other words, investment in physical capital
and infrastructure will not achieve its full potential without investment in the people who are
ultimately responsible for the successful operation of that physical capital (Mingat 1984). There
is also growing evidence of the importance of links between educational investment and other
types of investment in human capital, notably improvements in health and nutrition and
reductions in fertility. Not only does educational investment help to reduce child malnutrition
and mortality, but it contributes to general improvements in life expectancy and in the long run
helps to reduce fertility. Because the relation between education and fertility is complex,
however, an increase in educational investment will not automatically lead to a decline in the
birth rate. Recent analysis shows, for example, that female education has more influence on
fertility than male education (Cochrane 1979). Thus, measurement of the benefits of educational
investment should take into account not only the direct benefits of higher labor market earnings
of educated workers, but also the indirect effects on women's nonlabor market activities.
Particularly important in this regard is the contribution of female education to improvements in
the preschool abilities of children, which in turn may contribute significantly to educational
efficiency (Selowsky 1976, 1982).

The Balance of Educational Investment

The general conclusion from two decades of World Bank experience of educational investment is
that education fulfills a number of vital objectives:

* It satisfies a basic human need for knowledge, provides a means of helping to meet other basic
needs, and helps sustain and accelerate overall development. * It provides essential skilled
manpower for both the industrialized and informal sectors of the economy, provides the means
of developing the knowledge, skills, and productive capacities of the labor force, and acts as a
catalyst in encouraging modern attitudes and aspirations. * It helps to determine not only the
incomes of the present generation but also the future distribution of income and employment. * It
influences social welfare through its indirect effects on health, fertility, and life expectancy and
helps to increase the profitability of other forms of social and physical investment.

Because of the wide variety of benefits of educational investment and the diverse needs of
different developing countries, no single formula can be applied to all countries or to all
education projects. The gradual shifts that have occurred in World Bank lending for educational
investment (see chapter 2) reflect the widespread belief that universal rules cannot be applied
and that educational investment must be broad and diverse if it is to respond to the diverse needs
of developing countries. In other words, the strategy of choice between alternative investments
must be countryspecific, although it must follow broad criteria. The shift in allocations by level
of education reflects the realization that it is not only secondary and high-level technical
education that contributes to economic development, but that primary and nonformal education
and training are also productive investments. The shift from investment in construction to the
provision of equipment, learning materials, curriculum development, and technical assistance
indicates that the qualitative aspects of education are now considered to be as important as
quantitative expansion. Furthermore, the increase in lending for planning and managment
reflects the Bank's resolve to develop managerial capacity and to involve developing countries
more directly in determining educational priorities and evaluating alternative projects. The
further achievement of that goal is the principal objective of this book.