1. Economic Issues in the Education Sector Harry Anthony Patrinos Human Development Network

2. 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

3. Enrolment (millions) in Education, 1997 UNESCO: World Education Report 2000

4. Education Expenditures (% of GNP) China2.3 India3.2 Brazil5.1 United States5.4 Denmark8.1 France6.0 World4.8 Sub-Saharan Africa4.1

5. Wages Relative to Wages with No Schooling 0 1 2 3 4 5 6 Indonesia Thailand Peru Cote d’Ivoire USA Slovenia Primary SecondaryPost-secondary

6. 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)

7. And Why Not? Families and individuals demand education Tutors and institutions provide it The market works, or does it? Why should the government intervene?

8. Because….Market Failure Equity Externalities Capital market imperfections Information asymmetries

9. Market Failure: Equity The Middle Class and the Poor Girls Notion of education as human right Notion of compulsory education

10. Market Failure: Externalities Minimum levels of literacy for growth Science and technology? Health and fertility effects Spillover effects

11. Child Mortality by Education of Mother

12. 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

13. 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

14. But…Government Failure Equity External Efficiency Internal Efficiency Sustainable finance

15. 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

16. Distribution of Expenditures by Income Quintile Poor get less education

17. 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

18. 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

19. 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

20. 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

21. 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

22. Financing and Provision of Education

23. 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$) 1.81 5.45 8.80 16.06 1.65 1.76 3.41 0.39 2.50 1.84 2.21 5.55 Achievement change by input (coefficients) 3.513 -5.650 7.228 8.969 6.403 4.703 4.864 0.055 -0.160* 3.594 3.177 2.383 Achievement gains per US$ spent 1.94 - 0.82 0.56 3.88 2.67 1.43 0.14 - 1.95 1.44 0.43 Cost-Effectiveness Analysis of Inputs for Portuguese Achievement, Brazil

24. Education Expenditure and Achievement 02,0004,0006,0008,000 United States Switzerland Austria Canada Norway Denmark Japan Netherlands New Zealand Spain Czech Rep. Korea Hungary TIMSS Ranking Maths Science 2817 825 12 818 2620 2734 3 9 6 2422 3127 6 2 2 4 14 9 Expenditure/student

25. UrbanRural Mother ’ s Education++++ Father ’ s Education+++++ Age+++++ Gender (Male)+++++ Household Size- Recent Migration-- Language (Spanish ++++ Household Income++ speaking only) Urban Rural BasicoIntermedio PrimarySecondary Determinants of School Enrollment, Bolivia

26. Vietnam: Expenditure Scenarios

27. 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

28. 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

29. School Buildings Technological Alternatives: Mutually exclusive alternatives Lower present value Opportunity cost of capital

30. Analysis of Alternatives

34. 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