CHAPTER 3 HOW IS HUMAN CAPITAL BUILT?

Health and Education: Questions: What is the direction of causation between health and material well-being? Does high income per capita cause better health or more healthy individuals produce more income per capita? Does the education system in developing economies support economic development? Or does it just perpetuate the economic and political inequality between the rich and the poor?

Education The most institutional way of developing human capital is “schooling”: “Education Participation Rates”: Figure 3.1 in Akin

Education Expenditure per Student (EPS) is an indicator of quality of education  Figure 3.2 (Akin): While in low income countries EPS for primary and secondary education is $50, for higher education it is $1000. Whereas participation in higher education (uni.) is only 5% and these are mostly children of the relatively rich families. Conclusion: Public investments are unequally distributed to the public.  There is less inequality in high income countries: Participation in higher education is 50% and EPS for higher ed. is $9000. EPS for secondary ed. is $6000 and for primary ed. $5000.  Whereas it is found that an extra lira spent on primary ed. has the highest return on total welfare. (Pscarapoulos 2004).

Education Indicator of balanced spending: EPS / GDP per capita. Figure 3.2 in Akin. Low income countries: primary ed. 12%, higher ed. 250%.

Education Since 1975, schooling has increased rapidly. Table 3.2: rate of schooling in secondary ed. in the world. In developing countries, total education expenditures are growing slower than the number of students that register => therefore EPS and hence quality is falling. Also, burden on govt. budgets increasing. Demand for university ed. increasing b/c:  govt. subsidizes it,  makes it easier to find a job, a higher-paying job,  high school students are increasing

Education Private contributions to state universities across countries: Table 3.3:  The contribution of student tuitions to the university budgets is very low: TR 2%, US 15%, spain 20%, France 1%, China 9%, Japan 9%. The highest is Latvia 75%. Who supports them? Govt.

Education Uni. entrance exams:  some system of elimination exists in all developing countries, otherwise quality would be extremely lower  Private courses, stress, high costs. In China education expenditures exceeded mortgage expenditures: 10% vs 7% respectively.  The richer segment of population receives most of the subsidy because they have a higher chance of passing the test. : Indonesia: the rich gets 83% and the poor gets 10%. In Malaysia richest 10% gets 51%, in Chile, richest %15 gets 61%, In Colombia richest 6% gets 60% of the subsidy. The largest portion of govt. resources are spent for the well-off people.

Education Uni. entrance exams:  Much more competition as income per capita falls: Indonesia: out of 30 million candidates, only 2,5 million passes. Russia %10, Japan %25, India %2, TR %31.  In TR, only 30% of candidates are high school seniors. The rest is taking the exam 2 nd or more times.  Corruption in Indonesia: market for correct answers. In Russia, $1000 buys entrance into uni. with a report.

Education Education and the credit market: Not efficient because: Moral hazard problem: Lenders do not have sufficient info. about what the borrower will do.  Long term, high uncertainty and risk. High risk and opportunity cost of money for both sides.  Collateral is human capital but human capital is not like a commercial commodity that could be sold, so it is not a good collateral. Therefore there are positive externalities from education. Private markets do not produce socially optimal quantity, so govt. and foundations need to support education

Health A healthy population is crucial for development.  Diseases decrease productivity, especially of the manual labor.  In US, life expectancy has increased from 47 to 68 between 1900 and The period that an average person can efficiently work in her lifetime increased. Positive relationship between health and economic growth:  In 1960 life expectancy in OECD was 67 years, In Africa it was 40 years, in East Asia was 62 years. Contagious diseases index Africa: 0.8, OECD: 0.  If Africa solves contagious diseases problem, annual growth rate would be 1.25% faster, if life expectancy were the same with OECD, they would grow 2% faster; they would completely solve the development problem (Artadi and Sala-i Martin 2003)

Per Capita Health Expenditures High income countries: $2000, middle income: $170, low income: $20. Too much difference. Diseases and lost output. Private-public health exp.: share of public health exp. in GDP is higher in developed world (%6) while in low and middle-income countries it is only %2 and %3.5 respectively. Private health exp./ GDP is 2-3%.

Per Capita Health Expenditures Health exp. also increases returns on higher education by increasing life expectancy. When life expectancy increases from 33 to 83, schooling more than doubles (Kalemli- Özcan et al. 2000) Life expectancy of 60-something is ideal for high growth rate (Zhang et al. 2003). But as life expectancy exceeds 70, health exp. of the elderly dominates education exp. of the young. Growth rate starts to decline.

Human Capital in Turkey In TR, per capita health exp. in is between $150-$200. Figure 3.6. Much below developed economies ($2000). Number of beds per 1000 people: In TR 2 beds, in the West, 9 beds. The distribution of doctors & other health personnel and teachers across geographical regions is highly unequal. Therefore quality of health and education services is highly unequal across the country.

Other indicators of health Infant mortality, life expectancy.

Applications: Application: Average height as an indicator of health status: Table 3.5. Except Hungary, average height increased from 165cm to 175 cm over On the job training in TR : Presentation topic: Is there enough practical training in TR? What are the opportunities for internships and learning by doing in private and public sectors?