Economic Development in Asia

Chapter 10 – Human Resource Development:

A Focus on Education & Health
Chapter 10
 Human Resource Development
• In recent years, economists have
come to realize the importance of
human resources in stimulating
economic growth
• This emphasis became more evident
with the rise of new technologies in
computers, telecommunications &
the compilation, use & dissemination
of information
 The Economics of Education
• Spending on formal education has increased in many developing
countries over the past several decades
• This increase in education spending is due to:
– In part, a response to an increase in the number of cohorts in
the schooling age groups
– A result of higher incomes in these countries
 The Economics of Education
• Because teaching is labor intensive, it has
suffered productivity losses compared with
other occupations
• In addition, real wages have fallen relative to
the average
• Attempts have been made to increase
productivity by:
• Raising class sizes
• Adopting split shifts
• Reduce spending on teaching materials
• Using more distance learning
 The Economics of Education
• In some developing countries, private schools have flourished
• In particular, to teach specific skills like a foreign language or
computer related techniques
• The risk from more private education is that the equalizing effect of
free & universal public education will be compromised
• Those who can pay gets a better education while the public
educational system is starved of resources
 The Economics of Education
Nevertheless, there has been a growth in public spending on education, partly as a result
of growth in real income
– Estimates suggest that the elasticity is somewhat less than one
– When income doubles, expenditure on education rises by about 75%
As the average level of educational attainment increases, the average cost of education
per pupil also rises
• per capita costs of secondary & tertiary education is higher than those of primary
education
 Rates of Return to Education
• Evidence suggests that there are high rates of return to
education at all levels
• But there are diminishing returns, i.e. tertiary education has
lower returns per dollar invested than secondary education
• Returns to primary education are the highest
• Education is considered a merit good, that is there are
external economies to education
 Rates of Return to Education
• Positive externalities arising from the provision of education
includes the value of:
• Being able to vote intelligently
• Following the rules set down by society
• Making possible contributions to society through culture,
science, social science & the arts that exceed private
returns of the individual
 Private vs Social Returns to Education
(Micro Results)

• How can we evaluate education’s “net benefits to society”?

• Social returns to secondary & tertiary education, measured as the
“value of being a better citizen” because of literacy & numeracy
acquired, fall off quickly after primary school
• Therefore the economic argument for subsidies to secondary &
tertiary education is much weaker than is a subsidy for primary
education
• A further argument for less subsidy & more competition at the
tertiary level is:
• Private schools seem to be more responsive to changes in
demand than are public schools
 Private vs Social Returns to
Education
(Micro Results)
• In Asia, social returns to secondary & tertiary
education are moderately higher than private
returns
• This is because the public subsidy is a
relatively small share of total costs
• Subsidies are generally higher in Latin
America & Africa
In low income countries, private returns tend to
be higher than social returns
Private vs Social Returns to
Education
(Macro Results)
Evidence from a wide cross-section growth equation that adjusts
labor for degree of educational attainment don’t show a big payoff
to more education
Contribution of labor (adjusted for education attainment) is either
negligible or even possibly negative
 Private vs Social Returns to
Education
(Macro Results)
• 3 possible reasons for the shown results:
• Differences in individual country experience masks the true
relationship
• There is rent seeking & corruption among graduates & that brings
down growth
• There is a stagnant demand for educated labor, resulting in a
misallocation of resources
 Private vs Social Returns to
Education
(Macro Results)
• While these results should not be ignored, the evidence from Asia,
with the possible exception of bureaucracies in South Asia, does not
support these conclusions.
• Education, particularly secondary & higher education, have
played a key role in growth & development.
• Education can be expected to play an even stronger role in the
future as highly skilled labor becomes more important as an input
into the production process.
 Education, Labor Earnings &
Productivity
• Briefly, there is a large body of evidence that suggests that
education & experience explain a very large proportion of the
variation in earnings in both industrial & developing economies
• There is also evidence that discrimination is also a powerful factor
in influencing earnings
• When these two factors are put together, they argue very strongly
for removing discrimination as a way to raise income for the poor
segments of society
• Education is seen as a important tool to lift incomes, alleviate
poverty & improve income distribution
 Education, Labor Earnings &
Productivity
• Education enhances productivity by:
• Lifting the productivity of existing labor inputs
• Reducing the cost of adjusting to a change in the mix of
inputs
• Increasing the ability of workers to adapt to new technology
Education also enhances the ability to find additional employment,
such as during the slack season in agriculture
 Women’s Education
• There is a wide body of evidence that has been accumulated in the
past few decades suggesting that:
• Women’s education may be the single most important variable
in lifting standards of living in poor countries.
• This is because women’s education has a beneficial impact on
so many other related variables that are important in
development.
 Women’s Education
• A virtuous cycle of education & economic improvement occurs
with an increase in women’s education.
• The benefits of this include lowering infant mortality, raising
health standards for the entire family, increasing life expectancy,
reducing fertility, raising family earnings by increased female
participation in the labor force.
 Women’s Education
• Studies show that a more educated woman has greater bargaining power
within the household.
• this has resulted in more resources directed to herself & her children,
• education and health outcomes for female children improve significantly
• Even where labor force participation is suppressed, there is evidence that
increased education among women
• impacts positively on infant mortality
• & general family health
 Education in Asia
• Changes in the dependency rate (proportion under 15 & over 65
years old) have an important impact on the ability of an economy to
raise the average educational attainment
• When the dependency rate is high, particularly the proportion under
15 years of age, the cost of raising the level of educational
attainment is also high
 Education in Asia
• The NIEs & ASEAN countries show the largest decline in
dependency rates in the past three decades (Table 10.1)
• There is a weak correlation between an increase in per capita
income and a nation’s share of the budget for education
(Table 10.2)
 Education in Asia
• The ratio of cost of tertiary to primary education are much
higher in South Asia, the poorest region sampled (see
Bangladesh, India and Nepal in Table 10.3)
• China and Malaysia also have higher tertiary-to-primary cost
ratios compared to Indonesia, Korea, the Philippines, Sri
Lanka and Thailand
• The private sector play a much bigger role as a tertiary
education provider in Indonesia, Korea & the Philippines
(Table 10.4)
 Education in Asia
• There does not seem to be any relationship between the share of
the private sector in higher education & the level of per capita
income.
• Having said this, it is also true that the poorest countries in the
region all have small private sector involvement in higher education.
 Trends in Enrolment Ratios
Primary education has become widespread, if not universal
throughout Asia (see Table 10.5)
However the quality of this education can vary substantially
Efficiency of education (lack of over-age & repeaters) is higher in
richer countries (see Table 10.6 & Figure 10.3)
 Trends in Enrolment Ratios
Across Asia, the NIEs had a high mean number of years of schooling
for the workforce.
Gains in tertiary education were most pronounced in the NIEs & the
Philippines, although the Philippines started at a high rate in the
1960s compared with other countries in Southeast Asia.
In South Asia, the increase in enrolment rates have been modest,
particularly in tertiary education, where they have increased very little
as a percentage of the cohort group since the mid 1960s.
In Southeast Asia, the most impressive gains were in secondary
education.
 Improving Efficiency in the
Delivery of Education
• An argument can be made for greater privatization of the school
system by allowing the co-existence of private schools with public
schools
• Greater competition is believed to result in greater efficiency
• Index of private financing & costs per capita of public higher
education are further shown to be inversely related in Asia (see
Figure 10.4)
 Improving Efficiency in the
Delivery of Education
• Rates of return to education decline with years of schooling as
expected (Table 10.7)
• Returns are normally highest for primary education & lower for
higher levels of education
• However, the intrinsic merit good nature of education is not that
strong since social returns are lower than private returns
 Improving Efficiency in the
Delivery of Education
Based on the successful experience of the NIEs, this strategy to have larger classes
& higher pay for teachers has paid off in terms of a more efficient delivery of
educational services (Table 10.9 & Table 10.10)
 Rates of Return to Education
• A broader cross-cultural study of rates of return suggests that rates of
return to education in poor countries has risen in the past few decades
• This may reflect the increased openness that has made technology more
accessible throughout the world & raised the returns to skilled labor in
poorer countries
Gender Disparities in Education
• Literacy rates between genders are very
similar for many Asian countries with the
exception of South Asia (Table 10.8)
• Enrolment rates are similarly biased toward
men in South Asia
• In several countries (Indonesia, Philippines &
Thailand), tertiary education is higher for
women, a somewhat surprising result given
gender discrimination in so many other aspects
of economic life
 Major Policy Conclusions for
Asia
• Curbing population growth means lower dependency ratios;
this increases the ability of the society to provide education
with the same resource base.
• It pays to educate teachers more intensively, to develop
better classroom materials & to pay teachers more.
• It pays to put money into education of females.
 Major Policy Conclusions for
Asia
• It pays to introduce some private schools at the tertiary level
and/or reduce the subsidy to tertiary education.
• To improve efficiency of the delivery of educational services,
experiments with higher pupil/student ratios & decentralization
of authority over curriculum, management & budgets are
encouraged.
 Major Policy Conclusions for
Asia
• Provision of a good school environment with better material
resources & more qualified teachers is critical for developing
countries.
• There is a strong case for cutting the subsidy to tertiary education
in developing countries, including the brain drain problem, higher
costs per student & lower returns using the “merit goods” logic.
 Major Policy Conclusions for
Asia
• It is important to recognize that a balance must be struck between
various policy objectives
• If the educational system is to be used to address poverty & income
inequality it may be useful to consider scholarships for gifted
poor students rather than an across the board cut in subsidies to
tertiary education
 Major Policy Conclusions for
Asia
• The provision of more private schools runs the risk of creating an
“educational divide.”
• There are missing credit markets for education that should be
addressed either through government program or greater access
to bank loans.
 Health & Nutrition
• Health, for our purposes, means absence of illness & infirmity
• As indices of health (or illness), we use morbidity & mortality
rates
• Mortality is more closely monitored than morbidity & is more easily
defined
• Infant mortality, life expectancy, crude birth rates & crude death
rates are also terms that are widely used
 Health Patterns
• Health conditions of populations have improved gradually because of
advances in the medical fields
Life expectancy has increased, infant mortality has decreased &
morbidity may also have fallen
Availability of safe water, sanitation, immunization & access to medical
facilities have also improved in Asia & the world (refer to Table 10.12)
 Health & Economic Growth
• Health improvements & economic growth go together
• Can their mutual causality be disentangled?
• The curve relating per capita income & life expectancy
has shifted up over time, but it is still virtually flat after a
certain level of per capita income (Figure 10.5)
 Health & Economic Growth
Life expectancy rates in the poorer countries have caught up
rapidly with rich countries in the 1960s owing to advances in
medical technology
Poor health has an adverse impact on
labor productivity but is this a cause or
a consequence of economic growth?
 Health & Economic Growth
• In some cases, improvements in the health environment (malaria
eradication) was followed by economic development in several
Asian countries – including Thailand and the Philippines
• In other cases, the causation is less clear
• The relationship between infant mortality & economic growth is
particularly strong (Table 10.13)
 Aspects of Health
(Environmental Health)
• In many developing countries, the spread of infectious & parasitic
diseases can be effectively controlled by ensuring that people have access
to clean water & by the provision of an adequate waste disposal system
Experience has shown that such measures have effectively controlled the
spread of waterborne diseases such as typhoid, dysentery & cholera
 Aspects of Health
(Environmental Health)
• Improving housing conditions – ventilation & space –
can also minimize the spread of tuberculosis. Health
risks for these diseases are exacerbated by the
presence of urban slums in developing countries
 Aspects of Health
(Malnutrition & Food Consumption)

• What causes malnutrition & how could nutritional

improvements contribute to economic development?
• The consumption of food, like any
other good or services, are
determined by three elements:
• Income
• Prices
• Tastes
 Aspects of Health
(Malnutrition & Food Consumption)
• Engel’s law says that poorer households devote
a greater proportion of their budget to food &
that they have a relatively high income
elasticity of demand for food
• Within households, female children are generally
made to accept the greater nutritional burden of
adjustment to unfavourable price movement
 Aspects of Health
(Malnutrition & Food Consumption)
• Many traditional societies have beliefs about the health
effects of various foods that are not supported by modern
nutritional science
• Soybean products, for example, are found to be a cheaper
source of protein than animal products, yet families still
demand meat
 Aspects of Health
(Medical Facilities & Services)

• Medical facilities & services in

developing countries are very
inadequate in providing for health needs
of the population
Public expenditures on health is much
lower than those for education & defense
Developing countries tend to spend far
more on curative resources than on
preventive health care
Public Health Policies in Asia
• Public health spending could be increased as
a proportion of total health spending to
address needs of poor
• In Asia, infant mortality & income growth
are highly negatively correlated
• Causation is unclear but health outcomes are
closely interrelated with speed of development
• Medical services with higher positive
externalities should be subsidized
 HIV/Aids in Asia
• HIV/AIDS prevalence in Asia has increased in the last decade and pose
significant constraints to development in the region
• 4 high risk groups: sex workers & their clients, drug users & men who have
sex with other men
• HIV/AIDS impacts on the economy via …
• Lost productivity among infected members of the workforce
• Lost income and potential savings of infected working-age individuals
• Reduction in the stock of human capital
 HIV/Aids in Asia
• To control the spread of AIDs, control of the spread from 4 high risk groups is required
• Some measures include:
• Promote the use of condoms among sex workers & bisexual men
• Publicize the necessity for using measures to protect against Aids such as condoms & not sharing
needles
• Make condoms & needles widely available & at reasonable prices or else supplied for free in
clinics
– General promotion of HIV/AIDs awareness through public media & NGOs as well as newspapers
& magazine articles
 HIV/Aids in Asia
Important considerations in HIV/AIDS containment
• Wealth Matters!
• Education Matters!

- Having more wealth and higher levels of education lead to a better

understanding of the disease – how it is contracted and its devastating
consequences – and this leads to less risky behavior
- once HIV penetrates society, the poor and the uneducated are at
highest risk
- wealthier, more educated married women tend to speak to their
husbands more about avoiding AIDS
 HIV/Aids in Asia
• Policy Implications – preventative

• There is a need for highly targeted information campaigns tailored for the poor and
the uneducated
• Increase incomes through greater employment opportunities for all
• Keep education levels high – get more children and young adults to attend school for
more years.

• Policy Implications – curative

• HIV/AIDS treatment and drugs need to be

• made available to sufferers at reasonable prices
• Increase R&D efforts in treatment &
• drug development
 Summary
• Education & health are joint determinants of economic growth
& development in Asia

• Investment in human capital can accelerate growth through

increased productivity, greater physical investment and
reduction in dependency ratios

• Resources must likewise be devoted to improving health and

nutritional standards