Economics Publications Economics
2009 The Benefits and Costs of Alternative Strategies to Improve Educational Outcomes Peter F. Orazem Iowa State University, [email protected]
Paul Glewwe University of Minnesota
Harry Patrinos World Bank
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This Book Chapter is brought to you for free and open access by the Economics at Iowa State University Digital Repository. It has been accepted for inclusion in Economics Publications by an authorized administrator of Iowa State University Digital Repository. For more information, please contact [email protected]. “The Benefits and Costs of Alternative Strategies to Improve Educational Outcomes.” Global Crises, Global Solutions, 2nd ed. © Cambridge University Press 2009. http://www.cambridge.org/us/academic/subjects/ economics/economic-development-and-growth/global-crises-global-solutions-costs-and-benefits-2nd- edition?format=PB&isbn=9780521741224 The Benefits and Costs of Alternative Strategies to Improve Educational Outcomes
PETER F . ORAZEM, PA U L GLEWWE, AND HARRY PATRJNOS
Benefits from Schooling Table 4.1 . Sample statistics of estimated returns per year of schooling in developing countries Few empirical relationships have been investi Percentile ~· Female Urban Rural gated more frequently than that between years 10 2.J 3.7 3.8 1.2 of schooling and earnings. Hundreds of studies 25 45 8.9 6.3 5.4 using a wide variety of datasets from devel 50 !i.2 10.3 9.2 s oped countries, spanning many decades, and 75 9.5 12.3 10.6 10.1 employing alternative specifications to correct 12.6 for various potential sources of bias, have con 90 11.4 13.2 II .6 sistently found positive private returns per year Average 72 9.8 8.3 7.5 of schooling.• Returns arc frequently equal to or Standard 4.4 3.7 3.8 5 above long-run average market returns to other deviation investments. Skewness 1.2 - I -1.3 0.~ Estimated returns to schooling in developing Correlation O.R5 0.85 countries have been comparable in magnitude to Note: Authors' compilations of estimated returns to schooling usmg a stanuan.l Minccrian earning> funcuon> returns found in developed countries. Table 4. 1 applied to stxt)·thrcc hou,chold data,cts from fort)-t"o presents o rdinary least squares (OLS) estimates de,clopmg countries . ., hcse are the same data sets used for of returns from a standard Mincerian earnings ligurc 4.1, cx~cpt that .orne dataset. arc dropped because the) did not hme separate mformation on urban, rural. male. Jnd function applied to sixty-three ho usehold data female earnings. We thank Claudio Montenegro for suppl) ing sets from fo rty-two developing countries. The these esumates. results are presented separately for males and females and for urban and rural residents. These datasets were selected because the variable defi nitions could be harmonized across countries and because separate returns could be estimated • The opinions expressed are our o'' n and not neces sarily those or the World Bank. Amy Damon, Jean for men and women and for urban and rural Fares, Deon Filmer, Sarojini Hirshberg, Manny Jtmenez. residents.2 The same model was estimated for EliLabeth King, Claudio Montenegro, Annette Richter, all countries so that the variation is not due to Ray Robertson. and T. Paul Schultz provided advice on specification choice. Several interesting results topics, content and relevant literature as we prepared background matenals ror this paper. Shiva Sikdar pro are appa rent. vided able research assistance. First, private returns, estimated as the per 1 Card ( 1999) contains an excellent review or the various centage increase in annual earnings obtained estimation methods and biases associated with analysis or from an additional year of schooling, are almost the returns to schooling. It appears that returns to school universally positive. In only o ne case for women, ing generated by OLS estimation tend to understate true four cases for men, three for urban residents and returns, although the bias appears to be small. 2 We are indebted to Claudio Montenegro ror sharing two for rural residents did educatio n fail to raise these regressions resulb. earnings. The interquartile range for estimated
180 The Benefits and Costs of Alternative Strategies to Improve Educational Outcomes 181
real returns across countries varies from 5 to highest market skills will likely have moved to 10 percent for men and from 9 to 12 percent the cities. for women. The interquartJle range for both Finally, the most telling result from the urban and rural residents lies between 5 and II analysis of differences in returns to schooling percent. The median return ranges from 8 to I 0 across groups within countries is that the difler percent per year of schooling, depending upon ences are so small. Estimated returns arc very the demographic group. TillS is quite consistent highly correlated across groups. The correla with the average return of 10.9 percent for low tion in returns is 0.85 both between men and income countries fou nd 111 the Psacharopoulos women and between urban and rural residents. and Patrinos (2004) literature survey of studies Labor markets that reward education highly for published in the 1990s. \\ hlle there is consider men also reward education highly for women. able variation in the magnitude of the return, Countries with high returns to education in their there does appear to be a positive reward to urban labor markets also have high returns to mdividual time spent in sc.:hool. education in their rural labor market. A second generalizatiOn is that in all but a These returns suggest that across a wide array handful of countries, estimated returns to school of countries at all stages of development, educa ing are higher for women than for men. Estimated tion consistently offers sizeable positive returns returns average 7.2 percent for men and 9.8 per to wage earners not only to urban male cent for women across the datasets. One might youths, but also to women and rural youths. suspect that the difference in returns is due to a Nevertheless, a year of schooling will be more selection problem a lower proportion of women productive in some environments than in others. than men arc engaged 111 wage work, and so All of the distributions of returns in table 4.1 are one might suspect that it ts the most productive skewed downward, and so there is a tendency women that are disproportionately drawn into to have more extreme outliers at the bottom the labor market. However, the direction of bias than the top. One reason that is quite plausible is not obvious women \\ ho opt not to enter the but is difficult to illustrate easily is that school labor market will have a value of time in non quality differs across countries. However, if market activities that exceeds their market value, the economic environment rewards educational and so the bias could go in the opposite direction. investments, then developing country parents However evidence presented by Schultz ( 1999) have an incentive to seek private schools when and Duraisamy (2002) suggests that selection has the public schools are of low quality. Therefore, similar effects for men and women. 3 it is useful to examine other reasons why coun A third notable finding is that in about two tries or their citizens may not capture the reward thirds of the countries, returns to urban resi from schooling found in other countries. dents exceed those of rural residents, although the differences are smaller than those between men and women. Estimated returns average 8.3 Where Are Benefits from Schooling percent for urban workers and 7.5 percent for Greatest? rural workers. Again, one might suspect that the returns to rural workers are biased upward Schultz ( 1975) noted that human capital is because a disproportionate share of rural work most valuable in disequilibrium environments. ers will work without wages on home enterprises or farms. Again, the direction of bias is unclear, 1 One exception to this generalization that women have as those opting to work on a farm will have a higher returns to schooling than men appears in Iran~i higher val ue of time than their market oppor tion economics. On average. women's rate of return 10 secondary education is 0.6 percentage points lower tunities. Additionally, higher wages in cities and their return to university education is 1.3 per crea te an incentive to migrate from rural to centage points lower than estimated returns for men urban markets, and so rural residents with the (Psacharopoulos and Patrinos 2004). 182 Peter F. Orazem, Paul Glcwwc, and Harry Patrinos
Writing from the perspective of agricultural or develo ping new technologies, or switchmg economies, Schultz argued that in the absence occupations to fulfi ll market needs. Good adap of technological change, production shocks, or tive decisions require a reward, and so human price shocks, traditional rules of thumb on how capital will be most valuable when social or to efficiently manage a farm would be adequate. governmental institutions place few restrictions Consistent with that presumption, Fafchamps on mobility or trade, when wages and prices are and Quisumbing ( 1999) and Godoy et at. (2005) fl ex ible, and when property rights are enforced.4 found that schooling bas a negligible effect on There is no stronger evidence o f the role of freer productivity on traditional farms, even though markets in enhancing human capital productiv schooling raises earnings in the same locations ity than in the rapid increase in returns to school for farmers engaged in wage work off the farm. ing observed in virtually all formerly planned On the other hand, human capital has been economies as they made their transitions toward shown to play a very important role in agricul market system~ (Fleisher eta/. 2005). tural environments experiencing technological Sen ( 1999) further stipulates that it is not so change. Huffman and Orazem (2006) show that much any one economic institution as thecombi· the process of economic development almost nation of institutions that is important in defin universally requires an agricultural transition ing economic freedom and the ability to ~eek in which dramatic increases in the efficiency of rewards for skills. When we divide o ur countnes food production simultaneously frees up labor into groups based on their relative ranking m for emerging industrial sectors while lowering the Heritage Foundation's Economic Freedom the price of food (and hence raising real wages) Index,5 we get a picture of the importance of in urban areas. The most educated farmers are the overall economic environment in fostenng the first to adopt improved va rieties, equip returns to schooling (figure 4.1 ). Because higher ment, and production practices (Huffman 1977; index scores sigmfy less economic freedom. Beslcy and Case 1993; Foster and Rosenzweig countries whose index scores are in the lower 2004a; Abdulai and Huffman 2005). In India, half of the Economic Freedom Index have less returns to schooling were highest in areas where regulated economics, fewer restrictions on trade, Green Revolution technologies were most com flexible wage and price adjustments, and govern plementary with local agriculture (Foster and ment enforcement of property rights. Returns to Rosenzweig 1996). schooling are, on average, j ust under I 0 percent In order for human capital to attain it s high in these "economically free" countries. In con est returns, labor must be able to adapt to dis trast, countries in the more regulated half of the equilibria, whether by moving to industries or Index have returns to schooling averaging onl] areas with the strongest labor demand, adopting 6.4 percent. The gap in average returns between more and less free countries is much larger than 4 Accmoglu er a/. (2001 ); Accmoglu er a/. (2002) have the gap in average returns between men and examined the role of institutions that constrain or enhance women or between urban and rural markets. mobility and the exercise of property rights in retarding Mo re economically free countries have higher or fostering economic growth. average returns at both high and low levels ' Information on the Heritage Foundation Index is avail o f average schooling, a proxy for the level of able at www.hcritage.org/research/features/index/chap ters/pdfs/l ndex2006_Cha p5. pdf. development in the country. This suggests that 6 The negative estimated returns to schooling came from investments in schooling will be most valuable Azerbaijan in 1995; Moldova in 1998; Cambodia in 1997; in countries that allow workers to find their and Vietnam in 1992 altho ugh Moock er al. (2003) found highest returns across alternati ve sectors and small but positive returns for Vietnam in 1992- 3. More occupatio ns. 6 recent surveys available for Cambodia and Vietnam have generated positive returns to schooling as those countries There is considerable evidence that parents do have liberali.a:d their economies and improved the cli respond to rising perceived returns to schooling. mate for protection of property. In India, Foster and Rosenzweig (1996) and The Benefits and Costs of Alternative Strategies to Improve Educational Outcomes 183
% return
20~------, 0 More Free, Heritage Index Average = 9.9 percent
15 ADD D A D 10 . o. S9~CCJ QJ 0 o A ~ ..eo tF -E) o .Ao-\o AAD C4
5 tfu ·············
0+------,------r------2 4 6 10 12 14 6
Years of schooling -5 Less Free, Heritage Index A Average = 6.4 percent
-10~------~
Figure 4. 1 Returns to schooling, hy lzigh and low values ofthe Heritage Economic Freedom Index: forty-six developing countries, various years, 1990 2004 X ore: Dawusedfor table 4.1 are a sub-set ofthese datasers. Source. Alllhors' compilation oj\i\'ly-nine earnings regressions pro1•ided by Claudio Montenegro, using household data from forty-six cou11tnes
Kochar (2004) found that rural enroll ments rise o n parental abili ty to perceive those potential in areas with greater perceived returns to school rewards.7 ing due to techno logical innovatio ns o r rising Of course, just spending time in school is not urban demand for labor. Evidence from So uth enough to generate a return. More important Asia and Central America suggests that the rap is what is learned during the ti me in school. idly growing export-oriented sectors dispropor Investments o f time and money in a child's tionately hired more educated youth, and that schooling that fail to prod uce basic cognitive hiring has frequently targeted educated young skills such as literacy are almost surely wasted. In women. This has helped to increase enroll fact, studies that include both years of schooling ment fo r girls even without an explicit program aimed at raising girls' enrollment (Gruben and 7 Dati and Ravallion (2002) argue that econo mic growth McLeod 2006). Nevertheless, these responses in India ha~ tended to benefit most those groups with more schooling. Sources of growth were complementary are predicated on the ability of human capital with skills. Thi~ is consistent with the recommendation to move to the area or sector where it can find that efforts to fig ht poverty through growth must include its highest potential value in the economy, and measures to raise the human capital of the poor. 184 Peter F. Orazem, Paul Glewwe, and Harry Patrinos
Percent literate by years of primary education ······· 9 ry T ... ~ ·-r 8 0 ; 0 0 0.8 -···o 8 ...... 0 0
0 0 0.6 0
0
0.4 -••n••• •ono••••••• ••••••••••••••• u ...... 0
0 0
0.2
0 0
0 ...... o ......
0 2 3 4 5 6 7 8 Grade Figure 4.2 Distribution of self-reported literacy by grade attainment for youth aged 15- 24. various countries Source: alllhors' compilation ofsummary data from seventy-three household sun-eys spamringfifty-seren developing countries provided by Claudio Montenegro
and measures of cognitive skills find that it is While time in school does not guarantee the latter and not the former that drive earn the acquisition of cognitive skills, it is a lm o~t ings (Glewwe 2002). Similarly, Haoushek and impossible to acquire those skills without formal Kimko (2000) found that it is average cognitive schooling. As shown in figure 4.2, the probabil attainment and not average years of schooling ity of attaining self-reported literacy rises with that drives economic growth. More recently, years of schooling, although there is consider Hanushek and Woessmann (2008) show that the able variation in the pattern across countrie~ . cognitive skills of the population rather than Children who complete the primary cycle, about mere school attainment - are powerfully related six years of schooling, are almost certain to to individual earnings, to the distribution of attain literacy in most countries. While it tS income, and to economic growth. Their empiri theoretically possible that these children could cal results show the importance of both mjnimal have attained li teracy without schooling, figure and high level skills, the complementarity of 4.2 shows that relatively few literate individu skills and the quality of economic institutions, als never attended school. This presumption and the robustness of the relationship between that schooling is needed for literacy underlies skjlls and growth. the Millennium Development Goal (MDG) of The Benefits and Costs of Alternative Strategies to Improve Educational Outcomes 185
attaining universal primary education (UPE) to reverse the pattern of diminishing social by2015. returns to schooling. Various estimates generated by UNESCO, Both theoretical arguments and empirical evi U ICEF, and the World Bank place the dence support the view that interventions early annual additional cost of a ttaining UPE at in life have the highest returns. Carneiro and between $9 billion and $34 billion. These esti Heckman (2003) and Heckman and Mastcrov ma tes use various applications of procedures (2007) present a wealth of evidence that earlier that apply current average costs of schooling investments in human capital, including those to the fraction of children not in school. Even occurring before the start of formal school these high costs may be under-stated because ing, are far more cost-effective than efforts the children who are currentl y not in school to improve schooling later in life. It seems are disproportionately located in areas that are that because human capital development builds expensive to reach with schooling services or in upon past accumulations of human capital, it is households that are less keen to send children extremely important to develop a strong human to school.8 Others are not in school despite capital base at an early age. Numerous patholo having access to local schools, and so adding gies including criminal activities, drug abuse, more supply will not address the problem. We idleness, and chronic illnesses can be linked to argue that in order to make efficient progress a weak human capital foundation in the form toward the UPE goal, we need to identify of malnutrition, bad health, and poor schooling which illiterate populations can be served most experienced at the youngest ages. economically. Nevertheless, in some settings, particularly those of more advanced developing countries, returns may be substantial at the secondary or Should Investments Concentrate on the even tertiary level. In industrialized economies, Primary Level or Other Levels? private returns to tertiary schooling rose relative to returns to secondary schooling as new technolo Much of our discussion will concentrate on rais gies and investments in capital complemented the ing the fraction of literate adults in the world, skills of college graduates (Schultz 2004b). One but for many developing countries that have might suspect that similar changes are increasing already attained UPE, that level of schooling the private returns to those with secondary or ter is no longer relevant. It is useful to comment tiary educations in developing countries. briefly on why we focus on lower levels of This is particularly true in countries with strong schooling in identifying the highest benefit to growth in export trade. Xu (2000) argued that a cost interventions in the schooling arena. developing country can expect to attract tech It has commonly been presumed that school nology from multinational enterprises (MNEs) ing is subject to diminishing returns, so that the only if it has an adult population that meets returns to primary schooling would exceed those a threshold level of education of roughly ten fo r higher levels of schooling. Estimates of social years of completed schooling. That assessment returns to schooling reported by Psacharopoulos is consistent with findings that workers in for and Patrinos (2004) support that conjecture. eign-owned enterprises in Indonesia, Vietnam, Reported per capita schooling costs also suggest Malaysia, Guatemala, and elsewhere tend to that the highest returns must be at the lowest be drawn from the upper tail of the schooling levels: Government per pupil costs for second distribution in those countries (Goldberg and ary schools in low-income countries are more Pavcnik 2007), although the experience in than double the costs for primary schools, and Mexico appears to be in the opposite direction the per-pupil tertiary costs are nearly thirty-four times the primary costs. It is unlikely that any 8 Glewwe and Zhao (2006) present a summary of these gains in relative private returns are large enough estimates and a critique of the methodologies employed. 186 Peter F. Orazem, Paul Glewwe, and Harry Patrinos
(Robertson 2004). It is plausible that the rising associated with women's schooling. The fer returns to skill in the export sectors occur when tility transition, the common finding that the there is insufficient migration toward growing number of children per woman declines as tx:o sectors of the economy and/or because there nomic growth occurs, has been tied to increa~-s is an insufficient supply of the types of skills in women's val ue of time as their educatton exporters demand. increases (King and Mason 200 1; Schultz 2002). The OECD (2000) has revised the definition Angrist et a/. (2002) and Schul tz (2004a) both of literacy, going well beyond basic fa cility found that increased schooling from random!~ with reading and mathematics to incorporate assigned vouchers and conditional cash transfers functioning efficiently in the inform ation age. led to reduced fertility, although th eevidencewa~ This presents another illustration of the Schultz somewhat weaker in the latter case. I ncrease~ in hypothesis: The level of minimal functional lit women's (and men's) schooling has also been eracy rises with the level and complexity of the associated with improvements in the health of economic envi ronment. As a country develops, their children and other family members, \\ith the minimal level of schooli ng required to func improvements in the schooling of thei r ch ildren tion effectively will increase. However, in those - and, as a consequence, a rising quality of life economies, many of the barriers to obtaining from one generation to the next (de Walque the requisite sk ill s will be falling as the country 2005; Oreopoulos eta/. 2006; Paxson and Schady progresses. The countries we will focus on here 2007). More schooling is associated with later have not yet attained that level of development age of marriage and lower teenage birth rate~. for a large portion of their citizenry. which improves the health and schooling out comes of the next generation (Black era/. 200-t 2005a; Cardoso and Verner 2006). Many of tht If Parents Respond to Returns, most recent studies utilize changes in truanC) What is the Public Role in Schooling laws to generate plausibly exogenous changes 111 Investments? years of schooling (e.g. Patrinos and Sakellariou 2005), increasing the confidence that thesee!Tecb As argued above (p. 182) parents increase the of parental schooling on children 's welfare are intensity of their investments in schooling when ca usal. While in developed countries, some stud expected returns rise. If this is true, then why ies find only modest effects of parental schooling don't parents select the efficient amount of time on their children (Blacker a/. 2005b), the effect to send their children to school, the time at appears to be stronger in developing countries wh ich the private rate of return to an additional Markets are often credited with improving the year of schooling is equal to the market rate of allocation of resources in an economy, but those return to other investments of comparable risk? resource allocation decisions require agents who Either there must be returns to schooling that are able to absorb and react to information are not captured by the households or there Schooling is credited with lowering sea rch cosb must be constraints on household schooling and improving allocative efficiency, which has investments that prevent them from selecting the both pri vate and social benefits. These efficienC} optimal investment. ga ins will be spread broadly in the economy. For Several external benefits are frequently example, better-educated people are better able to migrate from rural to urban markets or from 9 One could argue that to the extent that these transfers less-productive to more-productive sectors, help of schooling and health are confined within dynastic ing th ose markets all ocate labor efficiently. Thts households, they arc not really ex ternalities. Parents will implies that the economy will be producing more get utility from their children's health or future welfare. evert he less, there may still be external benefits to having output from the same inputs, increasing the total healthier and more educated progeny that are not full y size of the pie available. Not all of these benefits captured by the parents and their children. will be captured by the migrants themselve~ The Benefits and Costs of Alternative Strategies to Improve Educational Outcomes I 87
(for example, labor that does not migrate will Households that are not credit constrained will get higher wages as the migrants pursue their invest optimally in their children's schooling and interests). Returns to capital are also enhanced then make any additional transfers in physical by efficient allocations of labor. wealth. This may be why there is a stronger Empirical studies have consistently found apparent tie between parental and children's that it is the better educated who are the most schooling in developing countries. In developed likely to adopt new technologies. Of course countries, credit constraints may not be impor these agents are acting in their own self-interest, tant and so variation in children's schooling but there will be benefib that accrue to others is not as strongly tied to parents' education or as well. For example, because food demand is wealth (Carneiro and Heckman 2003; Cameron relatively inelastic, improved productivi ty in the and Taber 2004). However, substantial seg agricultural sector from newly adopted tech ments of poorer countries are more likely to nologies or enhanced fam1mg ability will lo wer face credit constraints that will limit children's food prices, which raises consumer surplus. schooling opportunities. Lower food prices will tend to raise the purchas The best evidence regarding these credit ing power of urban wages and will hasten the constraints is that child schooling appears to shift of labor out of agnculture and into the be atypically sensitive to unforeseen fluctua industrialized secto r of the economy. tions in househo ld income, positive or negative. From Foster and Rosenzweig's (2004b) anal Edmonds et a/. (2006) found that unexpected ysis of the distribution of benefits from India's pension income raised schooling of grandchil Green Revolution, it is apparent that the tech dren in South Africa. In another setting, open nologies were first adopted by relatively skilled ing the Vietnam market to trade caused rapid farmers in areas with complementary land and increases in household income that increased irrigation. The social or private returns to the child schooling in Vietnam (Edmonds and technology would have been negligi ble without Pavcnik 2006). Negative income shocks from a group of farmers able to successfully imple weather or national recessions cause poor house ment the technologies. Falling food prices did holds to reduce child time in school (Jacoby and displace some farmers, but the displaced agricul Skoufias 1997, 1998; Funkhouser 1999; G lewwe ture labor fueled a rural industrialization. There and Jacoby 2004; Thomas et a/. 2004). There was an expansion of manufacturing employment is evidence that better educated parents can and increased wages and incomes in rural areas absorb these shocks more effectively (Glcwwe that were less suited to the Green Revolution; and Hall 1998). those areas benefited from the increased pro The existence of liquidity constraints creates a ductivity of the farmers in the Green Revolution second role for government provision of school districts. 10 ing, even in the absence of external benefits. Improved schooling opportunities can raise Under-investment in schooling by poor house the quality of public servants and hence of holds means that the level of national skills will public good provisio n. Indeed, improved human be lower than optimal. Furthermo re, the under capital is believed to improve the quality of gov investment will be concentrated among poor ernance in democracies. 11 children who will then be consigned to poverty Another reason why private schooling deci sions may deviate from social optima is that 10 The need for educated farmers to adopt improved parents may face borrowing costs that exceed technologies that would raise food yields has become the market interest rate. Becker and Tomes increasingly apparent with the run-up of food prices and ( 1986) showed that if households are credit con their impact on poverty rates world\\ ide. This is one of the topics covered in the World Development Report 2008: strained, they will under-invest in their children's A!{ricui/Ure for Developme/11 . schooling, but all intergenerational transfers will 11 Haveman and Wolfe (1984) have a detailed review of be in the form of human capital and not wealth. the sources of private and social returns to schooling. 188 Peter F. Orazem, Paul Glewwe, and Harry Patrinos
Grade 1 average 0.88 ------~ 0.8 ...... Grade5average ~' c 0.71------_'%._'%._ ~ix~fd,t~~1 t~
.t:Q Grade 9 average '%.f .A + ~ 0 0.6 · ~ ~ .'%. '%.;t4 I ··· 0. ~ 0.54------:z.- ~- ~ ..t~-
~ 0.4 "" .'%. . .'%. \~I ·? • tf ~ '%..A'%. , .. • Grade 1 Urban .'%. .'%. ~ '%. I .A. Grade 5 Urban ::K Grade 9 Urban 0.2 '%. 7 :~: ...... :.. ··· I ··· ... .'%. I I I 0.60 0.84 0.92 0 +------.------.------.------.~~~--~ 0 0.2 0.4 0.6 0.8 Male proportion Figure 4.3A Proportion ofmal e andfemale urban population completing grades 1, 5, and 9 in se1·enty-two de1•eloping countries in the future due to their poor human capital grades I, 5, and 9 in order to show how rapidly endowments. Government provision of school educational attainment drops off in these de\ el ing can therefore also be justified as a means of oping countries. The grade 5 information is of equalizing the opportunity to escape poverty particular interest, in that completion of fi\e across households of varying economic status. years of schooling represents ncar assurance of lifetime literacy and numeracy. Separate esti mates were generated for males and fem ales and Where are the Most Serious Gaps in for urban and rural residents. Enrollment Rates? Figures 4.3a and 4.3b show the first illustra tion. Each point represents paired male and One of the MDGs is to attain universal primary female proportions of the 20 29-year-old popu education by 2015. Despite the consistency in lation that completed a given grade level in a estimated returns to schooling across coun country. Figure 4.3a shows the relationship for tries, genders, and regions within countries, it is urban areas and figure 4.3 b for rural areas. The unlikely that this goal will be met. This section dotted 45° line indicates combinations where highlights which groups lag the furthest behind males and females are equally li kely to attain the in attaining the goal, and which lagging groups grade level. Values on the axes range from 0 to I. can be aided in the most cost-effective manner. with I representing universal attainment. Larger To illustrate the magnitude of the problem, deviations from the upper right-hand point (1,1 l we make use of seventy-two household datasets mean a greater gap from universal attainment of on schooling attainment compiled by Deon a given grade level. Filmer of the World Bank. All the datasets were The average schooling attainment combina collected between 2000 and 2006. We computed tions are also indicated for each grade level using the fraction of 20-29-year-olds who completed dashed lines. Note that, by construction, the The Benefits and Costs of Alternative Strategies to Improve Educational Outcomes 189
····-·· · ·· ~ M ~ 0 ~ i '.If.-.. 0 8 ' . -·········· Grade 1 a~erag~~~~ ~~' 0.68. ------)i( - - -~ • ~ i 0_6 i _ ...... Grade 5 average )K ~ ~~ 1 '+~ • r------, e 0.54------~ ~ ~ t + Grade 1 Rural c. j :;+:: ::+::::+:: ~ "~ I ~ 1.• r .A Grade 5 Rural ~ ~ ~ A :.: Grade 9 Rural ~ 0.4 ::+:: . ::+::A ~ ::+:: ~ I ~ I ~ Grade9average~::+:: I ~ + ::+:: J' .::+:: li) ~ 0.28- --- - )IE -- ~ ~ p • ~ .A ~ + "A I 0.2 ::+:: ::+:: ~;I· ~i ······
::+( ::+:: i~:¥~f%.& ~ + I ~ 0.33 0.63 0.78 0 -----.------, ~----- r------, 0 0.2 0.4 0.6 0.8 Male proportion Figure 4.3 8 Proportion of male and female rural population completing grades I, 5, and 9 in se1·enty-t11'0 del'eloping countrie.\
pa ttern of d ots will move toward the o rigin as than men. The population-weighted aggregates the level of schooling increases because the frac are that 20 percent of men and 26 percent o f tion completing grade 9 or more must be sma ller women fa il to complete fi ve years of schooling. than the fractio n completmg at least grade 5 Nevertheless, in some countries, girls do receive which will , in turn, be smaller than the fractio n mo re schooling than boys. Third, rural points completing grade I. tend to be farther from the 45° line, and so male Several facts emerge. First, most of the grade female schooling gaps tend to be largest in rural 5 points lie well below (l, I), and so most devel areas. Fourth, there is a very high correlation oping countries have yet to meet the goal of in educational outcomes across demographic UPE. This is particularly true in rural areas. groups. Countries with high boys' enrollment In urban a reas, the norm is for 77 percent o f rates also tend to have high girls' enrollment women and 84 percent of men to complete grade rates. Countries with high urban education rates 5. In rural a reas, the norms are 54 percent and have high rural rates as well. Finally, there is 63 percent, respectively. Aggregating across the considerable heterogeneity across countries in seventy-two develo ping co untries using popula schooling attainment levels, and so it is unlikely tion weights, 13 percent of urban residents and that the same strategy to raise enrollments wo uld 28 percent of rura l residents fail to complete work in all countries. Some have yet to get a five years o f schooling. Second, in both urban majority of children to complete grade I while and rural markets most combinations lie below others are approaching universal completio n o f the 45° line, indica ting that, on average, males grade 9, at least in their urban areas. are mo re likely to reach each grade level than Figures 4.4a and 4.44b repeat the exercise, females. Wo men are farther away from UPE except that the points are combinations of urban 190 Peter F. Orazem, Paul Glcwwc, and Harry Patrinos 1 ] . .. . Grade 1aver~:: ~ 0·8 0.78------~t;l c 11¥ 0 0.63- - .. :-::. -:- .:-::.. :-:-:-- _::K t: 0.6 _G~~ ~ ~e~a~e--- -~ ---- i A~~-1:A ...... a.0 A JJ* II ~ ::+( ~~ I I + ea. '*" Grade 9 average ~ ~ • 4 I ~ 0.4 ~ -- .A / ,... 1 ... l .r-----, a::J 0.33- ______~ ~ ~ 1 : + Grade 1 ::K ::K ::KI ~~ I &GradeS 1 ::K ::K ~..A ~ " A :t: Grade 9 0.2 ::+(::+(~::+(~;-~::+(A ~ ...... " ;t::''i(" ::+( I I ::+( ::+( ::+( A ::+( I I I o +-----~L-~----~~-r------o~.6_o______-.~ o~.8~4~o~· ~92~_, 0 0.2 0.4 0.6 0.8 Urban proportion
Figure 4.4A Proportion ofmale urhan and rural population completing grades I, 5, and 9 in seventy /11'0 de1•eloping countries
0.8 • ::+(~-- • Grade 1 average 'JCN' c 0.68------~~A 0 t: 0.6 ...... · ...... Grade 5 average...... _~ + ~· -t A. .. r---=--:--:o 0.54- ______~ + 1 .A • Grade 1 a.0 ea. ::( A ~~ ....~ & Grade 5 'iii / w :t: Grade9 ::; 0.4 a: "' A ~/7)(:( ... ~ Grade 9 average A 1 1 0.28------~ ~ ~ 1 I 0.2 -~/- .~~~~~;v~: X : ~ : o +-~~~~~~A~~-~~~_x~.A~.A_o~.~~4~~------A~o~.~~7~~o~.~~6____ _, 0 0.2 0.4 0.6 0.8 Urban proportion
Figure 4.48 Proportion offemale urban and rural population completing grades I, 5, and 9 in seJ•ent.r- 111'0 developing countries Source: Alllhors' compilation of educational allainment data pro1·ided by Deon Filmer from seventy-two original household swTeys collectedfi'om 2000 to 2006. 11' 11'11'. II'Orldbank.orglresearcll/project.\ledallain/. The Benefits and Costs of Alternative Strategies to Improve Educational Outcomes 191
and rural schooling attainment levels for males to complete grade 5 into two groups, those who and females separately. Almost all combinations never went to schoo l and those who dropped out lie below the 45° line, indicating that urban resi before completing grade 5. Our estimate of those dents get more schooling than rural residents. who never went to school is given by the fraction The degree of schooling inequality between of 14-year-olds who never attended. We present urban and rural children, as indicated by the the data by population-weighted averages of distance from the 45° line, increases with school geographic regions. ing level. Only 8 percent of urban males failed Our contention is that it is less expensive to to complete grade I, compared to 22 percent of get the children who have dropped out to com rural male; 16 percent of urban males and 37 plete the primary cycle than it is to get children percent of rural males failed to complete grade who never attended school to attain literacy. 5, the gaps that must be fill ed to attain UPE. For We know that for children who at least started both urban and rural males, there is a sharp drop school, there exists school capacity that induced off in attainment after grade 5. ln only 60 per parents to send the child to school. ln addition, cent of countries do a majority of male children these parents at least cared enough about their complete grade 9, and only rarely do rural males children's schooling to make an initial invest reach that level. ment of child time. It is more difficult to induce Schooling levels are even lower for females. parents who have not sent their children to As shown in figure 4.4b, almost all combina school to enroll the child for the first time and tions lie below the 45° hne, indicating that to take the child through the primary cycle. The urban females almost always get more schooling reason we focus on completing at least five grades than their rural counterparts. A large advan is the result from figure 4.2 that five grades are tage for urban females opens up immediately sufficient to attain literacy. Investments that do upon school entry. Just over two-thirds of rural not successfully carry the child through grade 5 females complete one year of schooling, but arc likely to be wasted. on ly 54 percent manage to complete grade 5. The fraction of children not completing grade Of urban females, 86 percent complete at least 5 varies from very small proportions in China one year of schooling and 77 percent complete and in Eastern Europe and Central Asia to over grade 5. The UPE goal has not yet been satis 40 percent of children in Africa. Worldwide, fied for about one-quarter of urban girls and excluding China and the Eastern Europe and one-half of rural girls in developing countries. Central Asian countries, 30 percent of children Consequently, while problems are not the same in developing countries fail to complete grade 5. across countries, a significant proportion of Of these, 55 percent started school but dropped developing countries have yet to attain the UPE out. To put these proportions into perspective, goal. about 112 million children were born in devel oping countries in 2004. Assuming that current patterns do not change between 2004 and 2015, Where and How can Schooling be we estimate that 26 million of these children Increased most Efficiently? will fail to complete grade 5. Of these, 14.4 million will start school and drop out before Given the substantial gap from UPE, our task attaining literacy and numeracy. 12 Those 14.4 is to identify where schooling attainment can million represent the most cost-effective target be expanded most efficiently. ln table 4.2, we for raising literacy rates in the world. If these present the stylized facts regarding the popula 14.4 million children were able to complete tion of youth aged 15 19 that failed to complete grade 5 by region of the world. All youth in this 12 Our fraction of children not completing grade 5 is rea age range should have been able to complete sonably close to the U ESCO estimate of the fraction of grade 5. We decompose the population failing children who arc illiterate. 192 Peter F. Orazem. Paul Glewwe, and Harry Patrinos
Table 4.2. Percentage of youth 15-19 years old not completing grade 5 and of 14 years old never starting school, by world region Eastern MiddleI Africa Asia Europe latm America East l S 1 East- West- East- South Chrna Central Central South North amp e South Middle Pacifrce Jlsfa.. · Africa , (15) (20) (II) [6) (I ) [I 1) (I OJ [9] [3) All childr.:n Not completing" 40.9'" . 46So 12.6'" 32.2' /o 1.3% 4.8% 17.5% 14.3% 19.1
Never ~tart i ng 14.4''ru :!4.6% 17.1 % 0.0'% 3.5% 6.9'\\, o.s·x. 74
DropoutJ :!6.5"•., 21.9' ;, 10.0'/u 15.1 "1• 1.3% I ..Wo 10.6'·.. 13.5% 11.7 Males Not completmgl' 39.9' " 40.9"•• 13.1 % 25.0% I.O'X. J.J% 18.1"1<· 16.5'';., I 5.2" Ne~er starting· I :!.5" . 20.7"•• 2.4% 1u ··· 0.0'!/o 1 6% 7.8% 0.9' 4.2
Dropout·' 27.4% :!0.2'!/o 10.7'!1., 13.9% I.O'~'o 1.7% 10.3'X, 15.6"1 · I 1.0" F.:mal.:s Not completingh 5 1.9"{, JJ.9"•u 39.9% 1.8'" 6.3'', 16.8'){. 12.2';/o 22.9" Never starting 16.7"·.. 28.5" u 2.8'/u 23.5"·· O.O''to 5.0'}'. 6. 1% 0.7% 10.6 DropoutJ 25.2'' 23.J rri 9.2" 16.3"·.. 1.8"' 1.3% 10.7% I 1.5'' 12.3 Urban
!\ot completingh 20.4·:, 7.3% 18.5' .• 1.2% 4.(t'fo 11.4' 0 10.6' 10.6 Never starting 5.0% 13.2% 1.6° u 8. 1% 0.0% 2.2% 0.6' 32 DropoutJ 15.4"•o 15.7°•o 5.7"u 10.4% 1.9% 7.0% 10.0" . 7.4 Rural ot completmgh 46.6'!/o 56.8"•• 15. 1% 37.6% 1.4% 6.2% 23.9% 29.0'' :! 7.9'
Never startmg 16.3' ro 30.6' 0 2.9"•o 20.6% 0.0% 5.4% 8.9". u ·;. I I 4 Dropoutd 30.3':{, 26.2"·., I 7.0'!/o 1.4% 0.8% 15.0''1., 27.3% 16.5 Bottom t"'o household income quinules Not completing' 55.0' 64.7'' • 24.1)'·, 54.0% 1.8"·. 6.8% 44.6'Vo 15.3"' 35.2" Never starting· 22.2'Y,, 36.8"•o 5.5% 27.8'!/o O.O"•o 5.7';1., 8.9% 1.7''•• 15.2
DropoutJ 32.9% 28.0' 'o 18.5"•.. 26.2"to 1.s· ,. I 1% 35.8% 13.6" .. 20.0" 0
Source: Authors' compilation of data CQmpilcd by Deon hlmcr from the most n.-ccntl ~ availahle household sur,cys conducted m each of the eighty-'>i< de'dl>ping countril'> bet\\ecn 1994 and 2005, M'M'M',M'orldiHmA.orglrewanhlprojeclfll'datraittl. • Population-~barc "cightcd averages of countne~ in the region. Number of countries mdudcd 111 the regional average is rn brackets. • The '>hare of 15 19-year-old' "ho did not complete grade 5.
infonna tion on child ren in the lowest two quin number of primary schools in a six-year pe riod ules of the income distribution. resulted in a statistically significant but sma ll We can also show the importance of house 3 percent increase in average yea rs of school hold income as a factor infl uencing child school ing. Similarly, Filmer's (2004) analysis of the ing attainment. The bottom of table 4.2 includes relationship between distance and enrollments the school entry, completion, and dropout rates across twenty-one developing countries gener for children living in households in the poorest ally found very small marginal effects of lower two income qui ntiles. Children in the poorest ing distance. Enrollment does not appear to be households fail to com plete grade 5 in higher highly sensitive to the distance to the neares t proportions in every part of the world: 37 per school. This does not imply that school provi cent of the poorest children fa il to complete sion is unimportant only th at the existing grade 5, compared to 23 percent overall. Of supply is already located in the most dense these, 54 percent dropped out after starting child populations. New schools will be dispro school. For all these groups, therefore, reduc port ionately located in relatively remote places ing the incentives to drop out would generate where there arc relatively few children to add substantial progress to\\-ard UPE fo r all demo to the rolls and relatively high costs of adding graphic groups in all regions of the developing capacity. world. Frequently forgotten in the analysis of new school construction projects is that they may cause some students currently going to private Supply- Side Interventions schools to switch to the new public schools. This is particul arly true in urban areas of develop There are two avenues th rough which govern ing countries where private schools are more ments can influence parental schooling choices. plentiful. As public school supply is expanded, Supply-side policies a1m to improve the quan some priva te school students are likely to switch tity or quality of schooling offered. These to public schools and some private schools will policies incl ude direct provision of newly con close, diminishing the benefi ts of the supply structed schools or of school supplies by the expansion.13 In rural areas, where private central government, but they can also involve schools are frequently non-existent, there is no the decentra lizati on of school co ntrol to local such crowding out effect of government school authorities who are behcved to be able to allo expansion. cate resources more efficiently to meet school needs. Demand-side policies attempt to directly Quality Matters, but we don't know how to in fl uence parental incentives to allocate more Foster Quality of their children's time to school. We will argue tha t demand-side policies show more promise It is undoubtedly true that hi gher-quality fo r cost-effecti ve means of enhancing schooling schools enhance human capital production outcomes, but we will fi rst explain why we view and raise the demand for education. However, supply-side mechanisms as less promising. research has fa iled to identify how to foster improved quality. For example, Ri vkin el a/. (2005) fo und that good teachers systematica lly If you Build it, they May not Come produce better academic outcomes than do bad The biggest concern with new school construc teachers. Unfortunately, good teachers and bad tion is that most of the costs of new build teachers look very much alike statistica lly they ing and staffin g are incurred before we find have the same education levels, si mila r demo out if parents will send their children to the graphics, receive the same in-service training school. Dufto's (200 1) analysis of Indonesia's massive public works project that doubled the 11 See Jimenc7 and Sawada (200 I). 194 Peter F. Orazem, Paul Glewwe, and Harry Patrinos
and are compensa ted similarly. In other words, efits for teachers, including many days of ~id teacher quality matters, but we don't know what leave and annual leave. One might gue:.~ ·hat matters for teacher quality. As teachers repre simply removing these legal absences would help sent 74 percent of recurring school expenditures resolve the problem, except that comparison) of in developing countries (Bruns et a/. 2003), it spot-check attendances with official attend" net would seem that any policy aimed at improving registries indicates that off-contract absen~.-es school quality would ha ve to confront teacher are rarely reported. Duflo and Hanna (2005) quality. The lack of agreement about how to report on the effect of placing cameras with foster teacher quality thwarts any general pre time indicators into remotely sited schools in scription regarding likely cost-effective avenues India. Compared to schools without cameras, for improvement. teacher attendance rises substantially. When There have been many studies of the educa teachers attend more regularly, their students tional production process, with very inconsist attend more regularly as well, and the studcnts ent findings. Teacher or school attributes that appea r to perform better on standardized t~t . appear critica lly important for student perform This experiment holds promise as a means of ance in one study prove unimportant or even reducing shirking by teachers in a cost-effectl\e detrimental in another. Experimental designs manner, but we do not yet have enough mfor don't really resolve the problem because the mation in other settings to know if these re~u lts value of one type of input (textbooks, say) generalize. may depend on what other assets the school It is undoubtedly true that higher-qualit) has available (trained teachers, English-medium schools enhance human capital production and instruction). A particular experimental infusion raise school demand. However, our lack of cle; r of inputs may succeed in some settings and not rules of thumb regarding how to improve sch• I others, complicating the applicability of the les quality suggest that we arc not yet prepared to sons to other schools and settings. As an exam make general propositions regarding likely co~t ple, Glewwe et a/. (2009) found that making effective avenues for improvement. textbooks more ava ilable in Kenya benefited students in the upper tail of the ability distribu Are Better Managed Schools Better, or are tion, who were prepared for the English-medium Better Schools Better Managed? texts, but the texts had no impact on average and below-average students, most of whom could International agencies have made decentraliza not read those tex tbooks. tion of school management a central theme of Chaudhury eta/. (2006) report that, in devel new efforts to improve the efficiency of public oping countries, teachers are absent about 20 service delivery in developing countries (Bard han percent of the time. Such absenteeism rates have 2005). The clear attraction of the strategy is that a tremendous impact on the education sector. In it offers the potential of improving school out terms of direct loss of financing, it is estimated comes without spending more on the schoob that between I0 and 24 percent of recurrent - we simply "spend smarter and not harder ' primary ed uca tion expenditures are currently to modify the common aphorism. The available lost to teacher absenteeism. Losses from teacher evidence, even that often used by proponenb absenteeism range from $16 million per year in of decentralization, is really too uncertain to Ecuador to $2 billion per yea r in India (Patrinos provide a high degree of confidence that !01.-al and Kagia 2007). Many of the absences are management can work in all settings, without perfectly legal as schools offer numerous ben- complementary investments. Studies by Jimena 14 and Sawada ( 1999) of the EDUC0 schools 111 14 EDUCOcomes from the Spanish acronym "Educacion El Salvador and by King and Ozier (2001) of con Participac10n de Ia Comun idad," or ··community the autonomous schools in Nicaragua found Managed Schools." that schools that exercised more local a u tonom~ The Benefits and Costs of Alternative Strategies to Improve Educational Outcomes 195
e\perienced gains in student attendance or test Returns to Increased School Supply Come -.cores compared to other schools. However, after a Long Lag participating schools are not randomly drawn loca l authorities had to self-select into the Supply-side interventions generally require the programs and would be dropped if they did allocation of funds upfront with the hoped-for not fulfill their obligations. It is likely that the child or parental response becoming apparent schools opting to accept local responsibility only later. Once built, there is no economic differ in ways that could vary school outcomes return to a new school unless children enroll, but compared to communities that did not elect to it may be fi ve years before children attain per participate in the program. In other words, a manent literacy. It may take some time for par finding that autonomous schools outperform ents to perceive school quality improvements. -.chools that are not autonomous does not imply Similarly, it may take some time for teachers that the non-autonomous schools would have and students to respond to better local school had better outcomes if they, too, had become management. Perhaps even more important is autonomous. that the returns to the parents will come in the More recent papers continue to find that form of increased child earnings that are far autonomous schools differ in important ways into the future and heavily discounted relative from those that do not exercise such author to the immediate direct and opportunity costs ity. Gertler et a/. (2006) find that Mexico's parents face in sending their children to school. rural school-based management intervention The combination of upfront costs, uncertain resulted in a small but statistically significant response, and delayed benefits place supply reduction in repetition and failure rates for side interventions at a cost-benefit disadvantage schools in poor areas. Galiani et a/. (2005) compared to the demand-side alternatives dis fou nd that early adopters of a school manage cussed in the next section. ment program in Argentina experienced the When conducting benefit-cost comparisons, largest improvements in schooling outcomes. efforts to shift the demand for schooling ha ve Again. the sorting of schools into autonomous some distinct advantages over efforts to influ and non-autonomous groups is not random. ence supply. A demand-side stimulus can be In Mexico, schools choose to participate in the targeted to the particular population currently program. In Argentina, the early adopters were not in school, whereas supply-side interven the wea lthiest schools. tions will generally involve some redistribu Even if decentraliza tion were known to raise tion of children who are already in school to schooling outcomes U!:>ing the same inputs, it new schools. Demand-side interventions ca n be is not clear how governments can best foster made contingent on the child being in school, decentralization. Gunnarsson eta/. (2007) found meaning that payment occurs only if the pro that most of the va riation in the practice of local gram is working. In contrast, as we have just school autonomy occurs \\-ithin and not between seen, supply-side interventions generally require countries, suggesting that national policies to the allocation of funds upfront with the hoped foster decentralized decision-making may ha ve for child or parental response becoming appar litt le elfect on actual school autonomy. ent only later. Demand-side interventions have We may eventually have a better grasp of how benefits to the household that are discounted to foster local school management and how to less heavily because they can put money in the generate the skills needed to manage schools in parents' pockets immediately. either by lowe ring areas th at do not already have those skills. At schooling costs or providing transfer payments the current level of knowledge, it is premature in exchange for the child being in school. The to make a general recommendation that local parents also see the benefits immediately rather school management will improve schooling out than the less apparent return in the form of comes. future income the child will earn as an adult. 196 Peter F. Orazem, Paul Glcwwe, and Harry Patrinos
Finally, from the societal perspective, demand additional school space cannot accommodate side interventions can influence behavior imme more students wi ll have little impact, demand diately and so have an advantage relative to the side strategies work best where there is ex more heavily discounted benefits of supply-side capacity in existing schools, which allo\\~ more interventions, at least in terms of increasing children to be added at a low marginal co~t. enrollment. Even so, some supply-side interven tions may be justified by their impact on learning Health and Schooling outcomes and by equity considerations, even though they could not yet be justified under There is a high incidence of malnutritton in strict comparisons of benefits against costs. developing countries. UNICEF compilations Adding schools to rural areas is expensive, and indicate that 28 percent of children in de e~ there may be insufficient numbers of students oping countries are moderately or se\en:l} to take advantage of the returns to scale needed under-nourished. In areas where malnutnuc liS to make the school cost-effective, even with common, nutritional supplements and/or treat· 100 percent enrollment. Similarly, some reforms ments for intestinal di seases or parasites offer an may be needed to shift the incentives for teachers inexpensive way to raise school attendance and or the aspirations of students, even if the reforms physical and mental capacity. take hold only over a long time horizon. Numerous policies aimed at improving child health have been administered to children cur rently in school, including the distribu tion of Demand-Side Interventions nutrition supplements, provision of school lunches, school-based immunization programs, This section reviews three types of interven and delivery of health education for studen· tions: Interventions in child health or nutrition Programs have also been implemented that attempt to improve the child's physical improve the health of infants and pre-school-age or mental ability to learn; efforts to lower the children, and these programs are the ones t~ t cost of public or private schooling that enhance have been most ngorously evaluated. households' ability to pay for schooling; and There is substantial evidence that malnutri income transfers to households that are made tion early in life compromises both cogmtl\e conditional on the child's enrollment, which wi ll and physical development in a way that rna} be make schooling more affordable and lower the difficult to reverse through better nutrition later opportunity cost of children's time in school. in life. For example, Glewwe eta/. (2001) found Demand-side interventions will be most effec that controlling for other household background tive in settings with high income and price elastici measures, children who were malnourished earl~ ties ofdemand for schooling and where the supply in life start school later, complete fewer year~ of of schooling is also very elastic with respect to schooling, and learn less per year of schooling. household wi llingness-to-pay (WTP) for school Alderman et a/. (2003) report similar findinf ing. Since stimulating demand in settings where for children who were malnourished because of exposure to civil war and drought in Zimbabwe. t\ There have been several reviews of early childhood Evaluations of efforts to provide nutrition..! interventions that combine schooling and nutrition in developed countries. Reviews by Currie (200 I), Carneiro supplements to at-risk pre-school children m and Heckman (2003), and Heckman and Ma ~te rove developed countries have shown permanent (2007) conclude that the benefits of these programs fre improvements in physical stature and cogniti\e quently exceed their costs and that the programs dominate development, both of which can raise lifetime interventions that occur later in life. Recipients of early earnings. 15 childhood training arc less likely to drop out of school or engage in criminal activities. Recipients of school break Behrman et a/. (2004) conducted an expen fa~! programs have healthier diets (Bhattacharya et at. mental evaluation of the Proyecto Integral de 2006) that can raise their cognitive development. Desa rrollo lnfantil (PJDJ) program in Boli\ia. The Benefits and Costs of Alternative Strategies to Improve Educational Outcomes 197
This program provides day care, nutritional programs is to improve child health, which is va l inputs, and pre-school activities for low-income uable in itself, and so raises the benefits side of the children aged 6-72 months. For children exposed equation. On the cost side, expenses are incurred to the program for periods exceeding one year, only if the children participate and so there is the authors report permanent ga ins in cogniti ve much less potential fo r wasted investments than developmen t and fine motor skills. Grantham is the case for supply-side interventions. McGregor et a/. ( 199 1) report comparable fi nd How generalizable are these studies to other ings for a si milar program aimed at stunted developing country settings? Miguel and Kremer infants in Jamaica, as do Armecin eta/. (2005) for (2004) argue that the potential impact of de low-income rural households in the Philippines. worming on school attendance could be very Vermeersch and Kremer (2005) found that pro large if expanded worldwide, in that 25 percent \iding free breakfast to pre-schoolers raised of children in developing countries are infected. attendance by 30 percent in Kenya, but did not However, it is useful to keep in mind that the raise average measured sk1lls. An analysis of a impact is in raising the attendance of children program that combined de-worming medication already in school and not necessarily inducing 1\'ith an iron supplement for pre-schoolers in children not in school to enroll. Secondly, their India also raised attendance and physical stature population of students had an infection rate of (Bobonis era/. 2004). 92 percent and so the magni tude of the impact is Health programs have been shown to raise likely related to fact that they selected sites most schooling investments for young school-aged in need of the intervention areas with more children as well. Afridi (2007a, 2007b) found modest infecti on rates would have sma ller pro that a school lunch program in India increased gram impacts. Demographic and health survey attendance of girls but not of boys, but did lower data suggest that health reasons are less often the incidence of malnutrition for both boys and cited as a reason for children not being in school gi rls. This program costs just pennies per day. In than are child work inside or outside the home, a widely cited study, Miguel and Kremer (2004) poverty, or lack of interest on the part of the examined the impact of a program that admin child (table 4.3). Health is cited more often in istered de-worming medicine to school children Africa and in urban areas of Latin America, but in Kenya. The treated children increased their is less often cited elsewhere. attendance by 0.15 years per pupil, at an implicit Nevertheless, nutrition and health programs cost of only $3.50 per child per year of schooling. for pre-school age as well as school-age children utritional programs can even have ben will have particular relevance for the poorest efits at older ages. McGuire (1996) reports that households, who have a disproporti onate share givi ng iron supplements to secondary school-age of the children who drop out before completing children ( 13 15 years) in a low-income country five grades. Many of these programs are rela can raise cognitive abilities by 5- 25 percent or ti vely inexpensive to deliver. Most importantly, the equi va lent of 0.5 years of schooling. Brown the benefits they offer from improved health et a/. (2006) found that the provision of iron alone may be much larger than the expense, even supplements and treatments for intestinal para if they have little impact on schooling. sites to adult apparel factory workers in India improved productivity. Even for these teenage Lowering Schooling Costs or older recipients, nutritional supplements are inexpensive and can generate benefits well in In many developing countries, parents face user excess of costs. fees for access to basic social services such One reason these health interventions can be as health care, sa nitation, potable water, or \iewed as particularly cost-effective in raising schooling. These fees may discourage service uti schooling investments is that the schooling is a liza tion by the most vulnerable children: Girls, collateral benefit. The main ai m for most of these the poor, the rural, the disabled, and minority 198 Peter F. Orazcm. Paul G lewwe, and Harry Patrinos
Table 4.3. Reasons for not attending school in urban and rural populations, by world region
All world North Afnca & Cdtiiii.Asia South & East Latin Amei regtons SSA Middle East & Europe Asia & caribbe Urban Rural Urban Rural Urban Rural Ur~Ej. Rural ~ ~ Work out>ide the home 7.4 .u 3.3 1.8 0.7 0.7 9.3 7.8 8.7 4.4 I!U 10.0 llou'e'' ark 7.3 11.5 5.3 7.9 5.6 9.9 6.1 9.3 10.7 19.7 11.7 17 9 Inadequate school supply 1.9 4.9 1.8 3.2 2.0 6.2 u 3.0 1.7 2.7 2.6 10. PO\Crty I!C! 18.1 24.1 23.9 4.6 3.4 u 0.8 24.2 26.3 II 9 II.' Lad. of intere•t 47.3 44.0 45.2 42.7 76.6 69.4 65.0 5lU 49.3 41.7 ~4 0 33 5 llcalth reasons 6.3 5.0 7.9 7.6 1.2 0.5 o.- 0.4 1.5 0.9 9.4 4 2 Others 11.5 12.3 12.4 12.9 9.3 9.9 16.0 20.5 4.0 4.3 12.1 12 3 Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Suuro:: Computation; flr Table 4.4. Percentage of developing countries charging primary school fees, by world region, 2005 ~ Latin Mtddle East .J Africa East Asia South Asia Eura~ America North Afnca Totl!!] Tuition fees 26"'• 25'% O'X, 20% 31 % 40%. 25 Textbooks 17% 41 °/ (Y•/41 :!0'~1o 31 % IO''ro 25 Lmforms 32% 41" 25" lO Y. 63% 20% 35 Parent Teacher Associations 67% 91 50'' 90".ro 73% 60% 69 and Community Fees Other 35% 58 'ro 37% 40'}0 J6'i"o 30". 36 Ollicial fees 65% 75'''• 50'/'o 90% 63% 80"·· Unofficial fees 32'Yo 58' X, 38% 30% 42'}:, 40% An) fcc 82"/., 92°1u 63% 100% 79% 90"/,, Source: Author's compilation or data reported in Katlan (2006), ann~' l Origmal data t.tkcn from World Ban~ ;urvc)' conducted m 2005 m ninety-three de\elopmg countri~ . ethnic or racial groups. If widespread, such elimination of universal fees for primary school user fees could be a significant barrier to the ing has been particularly noticeable in Africa. achievement of universal basic education and where countries such as Cameroon, Ghana. health care. Kenya, Lesotho, Tanzania, and Uganda ha\ e all reduced or eliminated fees since 2000. In fact. Primary School Fees are Commonly Charged in one could conclude that primary school fees do Developing Countries not represent a problem in that only 18 percent In 2005, the World Bank commissioned a survey of the ninety-three developing countries offi of primary school fees in developing ninety cially charge tuition for primary schools. three countries (Kattan 2006). The findings Nevertheless, the vast majority of parents m show a strong trend toward reducing the price developing countries still face private costs of of attending primary school in developing coun sending their children to primary school. and tries. Whereas only three countries offered free these costs are often large relative to meas ure~ primary schools before 2000, sixteen had elimi of household ability to pay. Even when go\· nated all school fees by 2005. The reduction or ernment policy prohibits tuition, fees rna} be The Benefits and Costs of Alternative Strategies to Improve Educational Outcomes 199 charged informally. Informal tuition is charged household expenditures in six and between 5- 10 m 7 percent of the countries, raising the per percent in another six. The burden is greatest on centage charging primary school tuition to 25 the poor: A stud y by Oxfam (2001) found that percent. Even more important, as shown in table the poorest two household income quintiles in 4.4, countries charge a variety of fees associated developing countries average over I 0 percent of with primary schooling, even when there is no their incomes on primary school ing. A study of tuition. Of the sixty-nine countries that have household expenditure patterns in Bangladesh, free primary school tuition, only sixteen actually Nepal, Uganda, and Zambia found that only offer free access to primary schools. The rest of food (and, in one case, clothing) takes a greater the countries charge alternate fees for textbooks, share of household expenditures in those poor uniforms, school support, or other mandated countries (Boyle eta/. 2002). payments for accessing the school. The most common of these is a fee charged School Fees Adversely Affect Enrollments of by a Parent Teacher Association or other com Disadvantaged Groups munity associa tion that supports the school. School fees will have an atypically large impact While these fees may be voluntarily paid by on enrollments of children that are particularly households, failure to pay can lead to expul price-sensitive. Orazem and King (2008) argued sion in other places. In addition, these fees tend that the most price-sensitive groups are likely to to increase as tuition or other explicit fees are be rural residents, girls, and the poor. If true, red uced . They are charged m 30 percent of the programs that uniformly reduce the price of countries despite official policies stipulating that primary schooling for all children will dispro such fees should not be charged. portionately increase enrollments of girls, rural In at least one-quarter of the countries, par children, and the poor, the very groups that have ents are charged for textbooks. Over one-third of been shown to lag in our education measure in the countries charge for uniforms and for other table 4.2 and in figures 4.3 and 4.4. Kattan's fees associated with school activities. Overall, 63 (2006) review oft he empirical record found large percen t of the developing countries have official increases in enrollment in the countries that policies to charge at least one of the five types of eliminated primary school fees. In the sub-set primary school fees considered. Fees are charged of countries where more detailed analysis was informally for at least one of the five fees in 35 available, the most rapid increases in enroll percent of the countries. In total, parents in 84 ments have been for poor, female, and rural percent of the developing countries have to pay children. Additionally, general fee red uctions either formal or informal fees to se nd their chil in Kenya, Lesotho, and Tanzania led to risi ng dren to primary school. These fees are required enrollments for orphans and children of parents in virtually all parts of the world including the with HIV/AIDS. two most populous, India and China. They are These findings of large enrollment responses commonly charged in the poorest countries in to school fee reductions hold up in more careful the world: 82 percent of the countries in Africa, evaluations that control for competing expla 63 percent of the South Asian countries, 79 nations. A rigorous evaluation is ava ilable of percent of the Latin American countries, and 92 a program in Bogota, Colombia wh ich was percent of the countries in East Asia. If these fees launched in 2004. The user fee reduction pro retard investmen ts in primary ed ucation, then gram, known as Gratuidad, was well targeted, their impact is truly worldwide. using a proxy-mean index, such that the prob These fees can represent a significant burden ability that households benefit from the fee to parents, particularly for the poorest house red uction is a discontinuous function of their holds. Across thirty-four countries for which score. This fact allowed Barrera-Osorio et a/. fee information was available, primary school (2007) to implement a regression discontinuity fees represented over I 0 percent of average design to estimate the program's effect. The 200 Peter F. Orazem, Paul Glewwe, and Harry Patrinos res ults suggest that the program had a signifi tions. Nevertheless, Deininger (2003) found that cant impact: The fee reductions offered to stu elimination of primary school tuition lowered dents from the poorest fa milies had a positive costs by 60 percent on average, or by about $16 effect on enrollment in primary and secondary per child. As a result, enrollments increased by schooling. The estimates suggest that the pro 60 percent. Consistent with the presumption gram raises the probability of enrollment for of larger price elasticities in rural areas, rural primary-aged students by about 3 percent and enrollments more than doubled while urban for secondary school-aged students by about 6 enrollments rose by only 16 percent. Using percent. These positi ve effects seem to be larger regression discontinuity and difference-in for at-risk students, and not to vary by gender. difference estimation techniques, Grogan {2006) Fafchamps and Min ten (2007) took advantage and Nishimura et al (2008) fo und that the of a unique political crisis to observe how par reduction in fees led to a reduction in delayed ents respond to schooling costs. In Madagascar, enrollments. The Nishimura eta/. analysis con supporters of a defeated presidential candidate cluded that grade completion rates up to grade imposed a blockade of the central highlands of 5 rose, with especially large effects among girls Madagascar that disrupted the delivery of all from poor households. public services, including education. Enrollment These very large responses to school price in rural primary schools was found to withstand reductions are the best argument for demand the effect of the crisis. After the blockade was side efforts to improve literacy. The contrast broken, the government suspended user fees with the very small increase in schooling that for public services including school fees to help resulted from the doubling of the number of the communities recover from the economic schools in Indonesia reported by Duflo (2001) consequences of the blockade. The fee suspen is striking. For cost-benefit comparisons, we sions were not applied immediately in all rural find th at relati vely low-cost fee reductions result communes, and so the authors could compare in much large behavioral responses than has enrollment changes in areas with and without been obtained from supply-side interven tions. user fees. They found that suspension of user Nevertheless, there is a significant concern that fees resulted in significant increases in school these large enroll ment increases can over-tax the enrollment. ability of the country to provide a productive Evaluations have found substantia l increases school environment. in enrollment even from modest reductions in the costs parents face fr om sending their children Reduction in User Fees Threatens School to school. A program that cut household costs Quality of uniforms and school materials in Kenya, at The Uga nda case also points out a poten tial a cost of about $15 per child, increased yea rs problem with reliance on use r-fee reduction of schooling completed by 15 percent (Kremer or elimination to attain UPE. The resulting et a/. 2003). This is an important result in that enrollment expansion in Uganda came at the it may not be necessary to eliminate all types cost of considerable over-crowding, as school of fees to get the desired behavioral response in supplies did not keep up. Pupil- teacher ratios terms of child time in school. Even places that rose from 48: I to 70: I in rural areas and from eliminated fees officially often still have informal 38: I to 65: I overall. Similarly, in the India fees to help support school fun ctions. school meal program, Afridi (2007a) reports A case in point is the best-known and most th at pupil teacher ratios were higher in par studied case of school user fee removal: That ticipating classrooms because supply did not of Uganda, which removed user fees in 1997 keep up with demand. This trade off between as part of the effort to achieve UPE. Note that increased schooling demand and reductions in in Uga nda, fees are still charged legally for the quality of schooling appea rs to be a general textbooks, uniforms, and other school func- characteristic of programs aimed at reducing The Benefits and Costs of Alternative Strategies to Improve Educational Outcomes 20 I user fees. Tiongson 's (2005) review of twenty o utweigh the losses attributable to over-crowd studies across ten countries found that, in all ing and reduced schoo l quality. In the case of cases, enrollments rose. But, in the fifteen stud Uganda, it seems that the gains clearly outweigh ies that considered the issue, measures of school the losses. A back-of-the-envelope computation quality fell in every case but one. suggests that even with a I0 percent increase in The loss in quality is not surprising fees academic failure conditional on having entered paid by parents can be a high fraction of the school, the 60 percent increase in enrollments total fin ancial support for a school. Private fees suggests that the fraction of children attaining account for over half the resources available to literacy increased by 44 percent. primary schools in Cambodia, and for over half the revenues available to the schools in Uganda Ways to Reduce User Fees without Sacrificing and Zambia before the elimination of fees; even School Q uality after the elimination of legal school fees, infor It is too simplistic to argue that cost reductions mal fees still account for 80 percent of school would be imposed only where there is excess expenditures in Malawi. In developing countries school capacity and so we can avoid the added where the taxing authority is weak, charging costs of hiring more teachers and building more fee for services rendered may be the only way schools. While we have demonstrated that the for public agencies to recover costs. It is not fraction of dropouts is large relative to the total surprising that the elimination o r reduction of number of children fai ling to complete the pri those fees creates a strain o n service delivery mary cycle and so potential capacity exists to and quality. meet their needs, in practice we know that some lt is not clear how damaging this over children will enter school that previously would crowding is to student learmng, but presumably not have enrolled at all. These first-time entrants children who were already in school may be will increase the number of children relative to negatively affected when thc!>c programs raise teachers and will eventually necessitate addi the number of students per teacher. Again, tional resources in order to maintain quality. the Uganda case provides careful studies that Some have argued that the only way to reduce address this issue. The Grogan (2006) study user fees in schooling is to have a coincident found that, following the fee reduction, there commitment to increase public support of the was a I0 percent fall in the probability that a schools to replace lost revenues. The strongest publicly schooled child of a given age and socio advocacy for this view comes from the literature economic characteristics was able to complete on user fees in health care. Removal of user fees a simple reading test contained in the 2001 increases usage, especially by the poor. A review Demographic and H ealth Survey Education of twenty-seven studies suggests that this policy Supplement. The Nishimura et a/. (2008) study has been most successful when supported by also found evidence of increased inefficiency: supply-side measures that remove other barriers An increased likelihood that children who start to access (James eta/. 2006). However, there arc school will drop out before completion. mechanisms by which demand-side measures We should emphasize that any program that can still increase utilization without sacrificing increases enrollments atypically for the most school resources. disadvantaged groups would almost certainly The most obvious of these is to target the fee result in a reduction in average measures of aca reduction to the most disadvantaged groups: demic success. That is because the population of The poor, female, rural, disabled, or minority children in school will be weighted more heavily children who are under-served by the for-fee toward groups who would be expected to have service. These targeted scholarships maintain more difficulty in school. The better measure of payments from those best able to pay who the net gain vs. loss from the program is whether arc already accessing schools while increasing the cognitive gains from increased enrollments enrollments of the most vulnerable. There is 202 Peter F. Orazem, Paul Glewwe, and Harry Patrinos considerable experience with local targeting to to gi rls. Randomly selected neighborhoods were identi fy those most deserving of public transfers given the option of packaging up to 100 girb' at relatively low cost (Alderman 200 I; Faguet scholarships of I00 rupees per month (equivalent 2004; Galasso and Ravallion 2005). Such efforts to $3) to try to induce a school operator to open would lower the adverse impact of the demand a school in the area. The scholarship offered response on school quality for those already in decl ined over time, fa lling to zero after four school. years. In urban areas, even this modest substd) was sufficient to induce new schools to open The Private Sector may be Induced to Provide (Kim eta/. 1999). and enrollments fo r both gtrb Some of the Necessary S upply and boys rose relative to enrollments in control The most promising mechanisms to reduce neighborhoods. A similar program in rural areas schooling costs without sacrificing quali ty is enabled schools to open, but the communities to provide the targeted poor with the resources were too poor and the nu mber of girls too fey, needed to pay for the costs of schooling. These to allow the schools to become self-sustaining vouchers could be used fo r support of public or (Alderman eta/. 2001 ). This raises an important quasi-public schools through the use of ca pita lesson for the likely success of private school tion grants, per-pupil payments that are made options to raise enrollments- invariably they will directly to the school. These could be used to be most successful in areas that would have been induce new private suppliers of the service when able to support private schools in the absence of a local supply was insufficient. Finally, they could subsidy: In other words, places with the greatest be directed to utilize existing excess capacity elasticity of supply for priva te schools. in private schools if the existing public schools In the Balochistan case, the privately man are over-subscribed. There have been successful aged scholarship schools were opened at one examples of each of these mechanisms in devel quarter of the cost of a public school, in part oping countries. because the schools were able to access proper!) The ava il ability of less expensive teaching at a much lower cost than building a school and and infrastructure inputs is a major reason to because the schools were able to hire teachers at consider pri vate rather than government school well below the government pay scale. Despite options to serve the expanding demand for that fact, school quality was sufficiently high schooling. James ( 1993) demonstrated that, that students in the newly formed scholarship in many developing countries, private schools schools outperformed students from similar are an important component of school supply: backgrounds in government schools. Private schools have excess capacity as meas In areas where existing private schools are ured by their relatively low numbers of students under-subscribed, vouchers may be an excellent per teacher. In addition, priva te schools may mechanism by wh ich governments can expand have a lower marginal cost of adding additional access less ex pensively than by buildi ng addi capacity than government schools. In these cir tional government schools. One exa mple of cumstances, modest public subsidies that induce this strategy was the Colombia PACES pro pri vate school suppliers to contribute addi gram tha t provided subsid ies to municipalities tional resources may increase enrollments at a to provide secondary school vouchers to poor fraction of the cost of pure public provision of children. There was ample evidence that the schooling. ex isting government school supply was insuf One way to accomplish this objective is ficient to meet demand and that private schools through capitati on grants to school operators. could add additional students without requiring A program in Balochistan province in Pakistan additional teachers or classrooms (King et at. attempted to spur both the demand for school 1999). Vouchers were offered only to children ing among girls and to provide an incentive for in the lowest socioeconomic strata in munici priva te school entry by providing scholarships palities where private schools had committed to The Benefits and Costs of Alternative Strategies to Improve Educational Outcomes 203 participate. The program cost of$193 (Knowles schooling completed. Moreover, they can take and Behrman 2005) is much higher than the adva ntage of existing under-utilized capacity cost of the primary school programs discussed in the form of potential teachers and spaces in above. Because the Colombia voucher aimed at private schools at a fracti on of the cost of build secondary students, the opportunity cost of the ing and staffin g new schools. Finally, they have children's time is much higher than would be the the add itional advantage that they use resources case if they were of primary school age. only if the children use the services. Angrist et a/. (2002, 2006) demonstrated th at children who were randomly sorted into the Conditional Cash Transfers program were I0 percent more likely to com plete grade 8 and also scored 0.2 standard devia Latin America n countries have moved rapidly tions higher on standardized tests. equiva lent to to the use of condi tional cash transfers to induce adding an additional year of school. For those parents to send their children to school. These in doubt about the external benefits from ed u programs transfer income to a household in cation, it is interesting that voucher recipients exchange for it sending their children to school, also were less likely to marry young or cohabit, and many include other components, typically and were less likely to engage 111 child labor. A adding nutritional supplements and mandating follow-up analysis confirmed that ed ucational health clinic visits for pre-school children and gains were permanent and not transitory. health training for mothers, so that they are not A program in India provides a third mecha aimed solely at education outcomes. Programs nism to enable poor households to enroll their have been or are being implemented in Argentina, children in school. In man} developing coun Bangladesh, Brazil , Chile, Colombia, Costa tries, students often participate in tutoring after Rica, Ecuador, Honduras, Jamaica, Mexico, school, with the tutoring often provided by the Nica ragua, Peru , and Turkey. same teacher they have in class. Poor children As with other demand-side interventions, ca1mot afford these services and may fa ll behind these programs will be most e!Tecti ve in envi their peers. A program in India hired local ronments in which schooling demand is highly women with high-school degrees to provide income- and price-elastic and where large num remedial tutoring to grade 3 and 4 children who bers of children are not in school. These circum had fa llen behind in school (Banerjee et a/. 2007). stances typically prevail in poor communities. At a cost of $5 per child , the program raised the Indeed, these programs are usually aimed at likelihood of a child achieving grade I ma th level the lowest income strata of society, and con by 11 .9 percentage points and grade 2 language siderable attent ion has been paid to identifying levels by 9.9 percentage points. By the end of which households truly deserve the program. the two-year program, children were perform Some of this effort seems misguided in th at the ing on average 0.28 standard deviations higher poor often face transitory income streams that on the test scores, roughly equivalent to having may make them appear poorer in some months attained one additional year of schooling. and better off in others: A transitory nature that The reason the program is so inexpensive is suggests that current income is a poor targeting that it hired less-qualified tutors at the market mechanism. In urban areas, it can be costly for rate rather than requiring teaching certifications authorities to try to establ ish which households and paying the govern ment rate. These tutors qua lify on the basis of income and which do not, {ca lled balsakhis, or children's friends) were paid only $10- $15 per month, roughly one-eighth of 16 This should probably have been discussed as a supply the government schoolteaching rate.16 side intervention. e'cept that it is virtually indistinguish able from the capitation and voucher syslems discussed Programs to reduce the costs of schooling elsewhere. This system could have been designed as a to parent s can have dramatic and immediate voucher lhat would give households the resources to hire impacts on children's achievement and years of a tutor. 204 Peter F. Orazcm, Paul Glewwe, and Harry Patrinos and such efforts lead to moral hazard problems substantial increases in primary school enroJ in which households may take o n activities that ment (Maluccio 2006). While most prograllb lower their earned income but increase their report positive impacts on enrollment, the ga1m chance of getting the government transfer. There are slight in some countries and substantial m are significant advantages to using geographic others. For example, there was little impact m targeting in populations where poverty is nearly Honduras, where most of the targeted childn:n universal, such as poor rural villages. In urban were already in school and the transfer was con areas, targeting on parental education may be sidered too small to effectively move children less expensive and is likely to be a better proxy away from child labor to schooling (Giewwe for permanent income than is current income. and Olinto 2004). On the other hand, enroll ln addition, parents cannot alter or conceal ment rose by 23 percentage points in Nicaragua schooling as easily as they can alter or conceal during the initial pilot phase, with most of the their income, so the moral hazard problem and gains in the form of children exclusively spend· classification problems are less severe. ing time in school, rather than combining school Conditional transfer programs will be most and work. successful when they are aimed at populations Summarizing across programs, it appears that not currently in school. In Brazil, where indi the largest effects from conditional transfer~ vidual municipalities established their own pro have been in rural areas and in areas that were grams until they were centralized under the particularly poor. The most efficient programs federal Bolsa Familia program, some programs target transfers to groups that are not already targeted children who were so young that the in school so that households do not receive vast majority was already in school. Allowing incentive payments for actions they would have self-selection into the program permitted fami undertaken even without the program. lies whose children would have been in school anyway to opt into the program and receive the transfer. Perhaps that is why the most careful Benefit-Cost Summary evaluation of the Brazil program (Cardoso and Souza 2006) failed to show large benefits. Our prima ry task in this chapter has been to The Bangladesh Food for Education pro identify the low-hanging fruit for raising educa gram transfers a grain ration instead of cash tional attainment in developing countries: What to poor households whose children regularly programs will raise educatio n outcomes most attend school. In other respects, this is similar to per dollar spent? We argue that demand-side the Latin American programs discussed below. policies dominate supply-side policies because Meng and Ryan (2007) found that beneficiaries it is much less expensive to stimulate schooling stay in school around one year longer than com demand and because the costs are incurred only parable eligible children who did not receive the when ho useho lds fulfi ll the program's objec transfer, with a larger effect for girls. ti ves. If households do not send their children The most efficient targeting mechanism would to school, the government does not expend be to focus on the ages at which school dropout resources. occurs. In the least developed countries, the Estimated benefit-cost ratios for discount target would be children of primary school rates of 3 percent and 6 percent are reported age. In middle-income developing countries, it in table 4.5. We report the estimates of other would be more appropriate to target second authors when we assess that they are more care ary school-aged children. lllustrating this point full y done than anything we could do from read is the finding that in more-developed Mexico, ing the paper, although we make adjustments conditional transfers had almost no impact when the authors used other discount rates. on primary school enrollment (Schultz 2004a) These estimates must be taken with a consider while in less-developed Nicaragua, there were able grain of salt. First, while there are reliable The Benefits and Costs of Alternative Strategies to Improve Educational Outcomes 205 Table 4.5. Overview table of B/C ratios from various efforts to reduce Illiteracy t~·-· ~ H1ghd1SCOUnt(6%) ~-l ; Benefit Cost BCR Benefit Cost BCR Health and nutrition program' Boli\la PI Dl: prc-schovl and $5,107 $1,394 3.7 $2,832 S I ,253 :!.3 nutntion• Ken} a: dcdc-wormingb 22461 3.5! 642 1448! 3.5! 414 Ken} a: pre-school and nutrition' 2246! $29.13! 77 1448! $28.6! 50.6 Iron supplcmcms to sccondar) $474! $10.49! 45.2 $289! $10.29! 28.1 'choolcrsJ Scholar~h•p/Vouchcr programs Pakistan urban girls' scholarship' $3.924! 108! 16.3 $2,530! $118! 21.4 Paki>tan rural g1rls' scholar,hip $3,139! $3 11 1 10.1 $2,024! $3261 6.2 India /Ja/sakhiltutoria1 program1 $7,002! $9.85! 7 11 $4,515! $9.76! 463 t;ganda free primary ~hool 3675! $140! 26.3 2370! $140! 16.9 program' Colombm: PACES !>l.'Condar) $476 S193 2.5 $205 S190 1.1 school urban voucher-1 Conditional ca\h transfer:. Mexico Progrcssa $17,565! $2585! 6.8 $12,923! $2535! 5.1 :-;icaragua: RE{)I $5,920! $1574! 3.8 $3,8181 $1574! 2.4 Sources: Behrman eta/. ( 2004 ). # • \1igucl and Kremer (2004).* Vermccn.ch and Kremer n<)()5).* Kno11lcs and Bchrman(2005). 'Alderm•m t•tal. (2003).••• Banerjee ct ul. (2007). Demmgcr (2003) •• An gmt <'I a!. (2006). •••• Schull/ {1004a). Malu~.-.:10 (:!006). r-.otes: #Bcnefit-co>t ratio computed 111 the paper 11-ith slight adjustment" for ditTercnces 111 di>count rate *Cost per year of o;chooling reporte-d in Abdul Latif Jamccl, Poverty Action Lab. MIT. Cambridge, MA (2005). 'Per year of schooling mduccd. "A>sumcs that the go\cmmcnt expands >chool >pace to accommodate addn1onal student> at the average co>t per primary >tudcnt ... Cost doe. not include \itlue of in kind donation of building. •••• E'timate doc• not mdudc the ,-alue of reduced fertility bcha' ior. data on the costs of most of these programs, the the country. A modest variation in the returns benefits are based on the increase in projected life to schooling will not be sufficient to reverse the time earnings from the expected impact on years conclusions regarding whether the benefits of of schooling. Our review of returns to literacy the interventions outweigh the costs. On the and to years of schooling demonstrated consid other hand, we apply these expected returns to erable consistency across countries, genders, and interventions that target young children who are urban and rural markets in the estimated returns not yet working, and so we do not have direct to schooling. In the estimates we report, we evidence of the impact of these interventions on assume that the return to schooling is an increase their wages when they become adults. of 8 percent per year of schooling completed Another reason why our calculations may over an estimated average earning fo r labor in be imprecise is that the returns to increased 206 Peter F. Orazem, Paul Glewwe, and Harry Patrinos schooling will depend on labor market and larger at the primary than at secondary levels 01 schooling factors that will differ across countries. schooling, and so any adverse impact on return ~ Returns will depend on the degree o f economic will be starting from a higher base. Third, drop freed om in the country - that is, on the ease with outs are disproportionately from household, which human capital can move to its highest facing liquid ity constraints, which means the reward. The magnitude of the schooling increase returns to schooling are being equated to .1 will depend o n how successfully the program higher than market rate of interest. Therefore. can be targeted to those populations that will their current level of schooling is inefficient!} respond most elastically to the in tervention. To low and the return to schooling artificial!} maximize effectiveness, programs should focus higher than the market rate. Fourth, return ~ on the grade level where dropouts are most to schooling in both developed and developing prevalent: At the primary level in rural a reas and countries have remained remarkably stable over in urban areas of the least developed countries, time despite very large increases in the suppl) and at the secondary level for urban popul ations of educated labor, potentially because there in middle-income countries. However, there is are external productive benefits from increas consistent evidence that the most productive ing fracti ons of educated workers that raise the interventions will be earl y in life because: (i) effi ciency of production. 17 Finally, even if the the costs of interventions increase with the age argument that raising the literacy rate would o f the child; (ii) very early health and school lower the return to literacy, a policy prescrip ing interventions have been shown to be more tion that we keep some predominantly poor p roductive than interventions later in life; and child ren illiterate so that we can raise the returns (iii) the earliest interventions have a longer life to schooling for literate children fails on almost time left in which to recoup the benefits o f the any ethical dimension. program. Generalizing across interventions, the The second argument, that the children who most responsive populations to these interven are devoting more time to school will be spend ti ons have been poor, rural, and female: The ing that time in bad schools or else will be raising very groups that are currently furthest removed pupil- teacher ratios, is a more credible concern. from universal primary educatio n. If true, then perhaps increased time in school Skeptics may argue that the children who will not result in greater literacy. For example, increase their schooling thro ugh these demand the results of cognitive tests for the Kenya de side initiatives will receive below-average worming experiment found that even though returns to that schooling, which will bias our students spent more time in school, their per benefits upwards. The rationale fo r these argu fo rmance on cognitive exams did not improve ments is that adding more educated workers significa ntly, although fo llow-up surveys may will crowd the market and lower wages fo r all yet fi nd an impact. The increased enrollments in educated workers, and that these child ren will Uganda a nd India were apparently only mod over-crowd existing schools and lower q uality estly accommodated by increased school materi for all students. als and so school quality may have suffered for Yet the fi rst of these arguments seems unlikely a ll children. Nevertheless, there is no consist to hold. First, even if every d ropout is induced ent fin ding that students perfo rm more poorly to stay in school until grade 5, they will be a in larger classrooms, especially in the range relati vely small fraction of the literate work of pupil- teacher ratios observed in develop fo rce. The o utward shift in the supply o f literate ing countries. Furthermore, our strategy begins workers will be modest. Second, in develo ping with the group of students who started school. countries, returns to schooling have tended to be and so any increase in pupil- teacher ratios wo uld occur because more students are stay 11 See Kremer (1993) for an example ofsueh a model and ing in school and not because formerly absent Acemoglu (2002) for a review of others. students are now attending. Our view is that the The Benefits and Co~ t s of Alternative Strategies to Improve Educati onal Outcomes 207 tie between yea rs of schooling and lifet ime earn direction, and note further that the literatu re has ings is sufficientl y strong that the benefits will not demonstrated that returns to girls' schooling yet become apparent as these children age, even are substantially lower than are returns to boys' if they do not appear immediately. It should be schooling. We also make no adjustments for any emphasized that, in most of the cases summa possible additional external benefit s from better rized in table 4.5, improved cognitive ability did functioning labor markets, more efficient use of accompany the increased time in school when capital and technology, or better-functioning both were measured. government institutions. Finally, we assume In designing these programs, efforts to sup that the benefits of the intervention are confined plement existing supply by working outside the to the individual child who was the target of government school system are generally less the intervention. It is plausible that benefi ts expensive and subject to fewer regulatory con may cross generations, in that more-educated straints. Such priva te sector educational pro parents can better provide for their children, gra ms will be most effective in urban areas where but such projections are even more speculative the elasticity of educational supply is greatest. than the labor market earnings projections that Health programs offer oppo rtuni ties for collat underlie our current projections, and those ben eral educational benefits while improving child efits are occurring sufficiently far into the future welfare. that they will be heavily discounted. We ex pect We should emphasize that where there are that our more limited measure of the likely binding pace constraints in school, stimulating returns to schooling will counteract any upwa rd demand will not be eiTecti ve without a concomi bias in returns attributable to our ign oring any tant increase in supply. However, programs that lower quality in the schools available to these require an increase in supply are much more children. expensive than programs that exploit existing We provide summary information on benefit excess school capacity. Secondly, programs that cost ratios for many of the programs mentioned can make better use of extsting resources such above. Ourestimatesconcentrate narrowly on the as those that reduce teacher absenteeism or returns from additional years schooling induced en hance parental commttment to the school by the program. This can be misleading in ei ther show promise but arc sti ll in preliminary test directi on. The reported benefit-cost ra tios will ing. More wo rk is needed to see how these be biased downward in that they ignore external programs can be generalized. Fi nally, we know benefits and benefits from health improvements. teacher and school quality matter, but we do These biases can be large. Adding the impact not know how to foster qua li ty. Until we do, that increased years of schooling reduces the we cannot make a proposal focusing on quality fertility rates of young women, as was found en hancements. in the Colombia PACES case, raised benefit In our estimates of the benefits of demand cost ratios substantially, to 25.6, instead of 3.3 side policy prescriptions, we assume a fo rty-five when only the earnings benefi ts of schooling are yea r work career. In our projection of lifetime included (Knowles and Behrman 2005). earnings, we implici tly assume that the va lue of On the other hand, past returns to schooling time outside the market rises in value at the sa me may over-state the future earnings of previously rate as the value of time in the labor market. marginalized children wh ose schooling is dispro This assumption is particula rly suspect in the portionately rising as a result of these programs. cases where women are not commonly found Such groups may well face more difficulty find in the labor market, as in the Pakistan example. ing employment and entry into higher-paying On the other hand, we do not make any adjust occupations than have groups who wo uld fi nish ments for possible external benefits of women's schooling without public fin ancial support. education such as healthier children and reduced fertility which would create a bias in the other 208 Peter F. Orazem, Paul Glewwe, and Harry Patrinos Why Benefit-Cost Ratios Vary of reduced fertility was included. Important!\ neither the iron supplement program nor th; It is immediately clear that many of these bene voucher program required buildingmoreschoo s fit-cost ratios are large, and some are extremely o r adding capacit}, a key to keeping their CO)iS so. The largest tend to be very low-cost health low relative to their benefits. interventions in areas with a very clearly defined need, such as 92 percent worm infestation in Kenya. Others are low-cost provision of private Conclusions teachers or tuto rs for under-served poor children in urban Pakistan and in India. The very high In examining the pattern of results in table 4.5, benefit-cost ratios are attributable both to the it seems clear that the most cost-effective inter selection o f very low-cost interventions and to ventions occur when children are dropping out the placement of these interventions in settings for reasons of malnutrition or treatable illness. where they would be disproportionately suc Often very low-cost interventions offered at the cessful. The expansion of these programs more school site correct the health problems, impro\'e broadly would occur in less fruitful areas and the cognitive capactty of the child, and increa~ at higher costs, implying that the benefit-cost attendance. While this represents perhaps onl) ratios would fall. The key point is that even very I 0 percent of the ilhteracy problem according substantial corrections for selection would still to the estimates m table 4.5, it is by far the suggest that these programs were worthwhile. most cost-effective solution. School dropout The more broadly distributed interventions attributable to poverty o r child labor is a more such as the conditio nal cash transfer programs prevalent problem and requires more expensi\e or the voucher plans are less selective in terms interventions to correct. Nevertheless, the use of the places where the interventions are imple o f conditional cash transfers, capitation grants, mented, and as a result the benefits are more or school vouchers can sufficiently increase modest. In those cases, the largest benefits are li teracy rates so that the benefits outweigh the found when they target populations that are costs. initially out of school. For the Mexican Progresa Where possible, education and health inter intervention, cash transfers to younger children ventio ns should be married, as each will enforce were almost certainly not cost-effective because the other. lt is cheaper to distribute health and most of the children were already in school. nutrition services at the school site and, in so The cost per increased year o f schooling at the doing, parents are more likely to send their chil primary level was roughly six times the cost of dren to school. W hen the mechanism used to inducing an additional year of schooling at the increase school demand involves transfers that secondary level. improve a child's health and nutrition, we also Another generalization that is apparent in improve the child's cognitive capabilities and table 4.5 is that the largest benefit-cost ratios school performance, raising the returns to the are interventions early in the child's life because program. Any additional external benefits from the interventio ns cost less and the child's oppo r individual schooling just add to the plus side tunity costs are small. Nevertheless, some pro of the ledger. These collateral benefits come at grams targeted at o lder children can still be no added cost, lowering the risk and raising the cost-effective if the costs are modest. The iro n ex pected return to the intervention. supplement aimed at secondary students had T o put o ur strategy in perspective, we esti substantial benefits because the costs were so mate that every year approximately 14.4 million low. The benefits were more modest from the children could be induced to attain li teracy Colombia PACES program because the voucher in a cost-effective manner because they start was more costly, although recall that the benefits schooling but drop out before completing grade are more substantial when the collateral benefit 5. We take the fact that they start school as The Benefits and Costs of Alternative Strategies to Improve Educational Outcomes 209 evidence that there is some source of school Alderman, H., Hoddinott, J., and Kinsey. B., supply in close proximity to the home, and so 2003: Long-term consequences of early it is the demand side that is constraining their childhood malnutrition, IFPRI Discussion completion of five years of schooling. Several Paper, 168, Washington, DC Alderman, H., Kim, J., and Orazem, P.F., 2003: modest-cost mechanisms have been tried to Design, evaluation, and sustainability stimulate schooling demand for such c hildren by of private schools for the poor: The lowering the cost of attending school o r by tying Pakistan urban and rural fellowship school the receipt of health services. nutritional supple experiments, Economics of Education Re1•iell', ments, or income to child attendance at school. 22: 265- 74 Although some programs had higher costs, $250 Alderman, H., Orazem, P.F., and Paterno, E.M., would pay for a ll but the most expensive of the 200 I: School quality, school cost and the interventions summarized m table 4.5. That public/private school choices of low-income means that for $3.6 billion, and perhaps much households in Pakistan, Journal of Human less, we could significantly raise the schooling Resources, 36: 304-26 attainment of these 14.4 milhon children by one Angrist, J.D., Bettinger, E., Bloom. E., King, year. To raise their attainment by the 2.5 years E.M., and Kremer, M., 2002: Vouchers for private schooling in Colombia: Evidence on average needed to complete the prima ry from a randomized natural experiment, cycle, the cost would come to $9 billion. 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