DOCUNENT RESUME ED 267 371 HE 013 703 AUTHOR PsacharOpoulos,George TITLE Higher Education in Developing Countries:A Cost-Benefit Analysis. Staff Working PaperNo. 440. INSTITUTION World'iank, Washington,D. C. PUB DATE Nov 80 7 NOTE 134p. AVAILABLE FROMThe World Bank, 1818 H Street, NW, Washington,DC, 20433. EDRS PRICE EF01 Plus Postage. PC Not Available from EDRS. DESCRIPTORS *College Curriculum; Cost Effectiveness; Departments,' *Developing Nations; EcOnomic'Pactors; *Educational Benefits; *Eddcational,Finance;.Eddcation Work Relationship; Employment Potential; Foreign , Countries; *General Education; Higher Education; Liberal Arts; Program Costs; *Technical EducatiOn4 Vocational Education ABSTRACT The socioeconomic rationale of higher education provision in developing countries is examined bya review of the costs and benefit's associated with investment inhigher education' as a whole And especially in different postsecondary subjects. University expenditures in developing countries typicallyaccount for less than 20' percent of the' state budget for education,_ andan in part of this expenditure is devoted totechnical and vocational subjects. This is indicated,by the'risingrelative share Of university enrollments in engineering, agriculture,and related fields of specialization.- The internationaltrend toward technical subjects is tliought to reflect the notion thattechnical education coitributes.to-economic development. Thescientific basis' of this notion is examined by examining criteria ,for social,choice in education: efficiency, equity, employment effects,social demand satisfaction, and flexibility benefits. Assessmentof higher edUcaiion costs at the aggregateuniversity level and the subject field level permit an analysis of the behaviorof unit costs as enrollment rises and documents cost differencesbetween various university' departments. The quantitative side ofhigher education benefits is analyzed, including the earning advantageof the graduates of different subjects, social demand satisfaction,income distribution, and employment prospects. Nonquantitativeaspects of the choice between liberal and vocational educationare addressed by ,reference to curriculum theory and the'sociology of knowledgeand change. The results suggest that technical and generalcurriculum have their place in a balanced educational"System. A bibliographyand data for different countries are appended: (SW) ***********************************************************************. Reproductions supplied by EDRS are the best_ can_be_made from the original document. ******1****************************************************************' The views and interpretations in this documentare those of the author and should not be attributed to the World Bank;to its'aEfiliated organizations, or to any individual acting in their behalf. WORLD BANK Staff Working Paper No 440 - AO' November 1980" 4 e. 'HIGHER EDUCATION IN DEVELOPING COUNTRIES: 5 A COST - BENEFIT ANALYSIS The purpose of this paper,ib to take'a close lookat the socio-economic rationale of higher education provision,in develOp-r, ing Countries. This is done byreviewing the costs and benefit's associated with investment'in higher educationas a whole and especially in different post-secondary subjects. University costs, and in particular benefits,are treated here in their broadest sense to arrive at the true contribution of higher eductation'to the.. Jr standard of living of the present and futuregenerations. 'This socio-economic evaluation of the higher education subsectpir is performed by reference to a multi-country, multi-perioddata set, which has been augmented by, nonquantitative considerations. k U.S, DEPARTMENT OF EDUCATION NATIONAL INSTITUTE OF EDUCATION EOUCAJIONAL RESOURCES INFORMATION CENTER (ERIC/ his document has beenreproduced as received from the person OForganization onginating it f o Prepared by: George Psacharopoulos I Minor changes hate been madeto improve reproduction quality Consultant, o Points of view or opernons statedIn this docu g Education Department ment do not necessanly represent office' NIE Central Project§, Staff position or poky 0 REPRODUCE THIS "PERMISSION TO MATERIAL INMICROFICHE ONLY BY HAS.BEEN GRANTED . Cdpyright © 1980 The World Bank RESOURCES TO THE EDUCATIONAL (ERIC)." INFORMATION CENTER Washington, D.C. 20433 2 I .e A 1 3 ' ACKNOWLEDGEMENTS ati indebted to a number of persons whb substantialiST- 'contributedto the completion' of this study.tSteve Heyneman and Mulugeta Wodajo made very useful commentson an early outltne and `supplied me with empirical materialon which this study ispartly based. Kiong Hock Lee was itqatrumental in compilingand arialyozing what is later described as "the internationalcross-section data set."Mina Midge and David Jenkins contributed to theparticular flavor-Of the penultimate section.,Mark Blaug, Jon Lauglo, Walter McMahon, Per Eklund, Manuel Zymelman,,MaryJean,Bowman, Abdel-leandan Taha and William Rees reada'first draft of the manuscript and offered .suggestions for improvethent. 2. George Psacharopoulos, 4' r $ TABLE OF CONTENTS ---,' ,, t Page , . SECTION I: INTRODUCTION AND SUMMARY- . \ 1 . Paper Outline 1 Synopsis of the Major Points 2 , Qualifications' '4 , SECTION II: CURRENT BUDGETARY ALLOCATION TRENDS 5 The Between Country Type Distinctfort 5 The BetweenEducational Leyel Distinctioll S... 6 The Field of Study .Distinction . 7 Over Time Allocation Trends t 8 .The World Bank Lever...' ,-. 9- , SECTION III: THE C ITERIA OF SOCIAL CHOICE IN EDUCATION 13 --7 _ K The Social We-being FunCtion 13 Efficiency. , , ,14 Eguiti, ... AI 16 Eirployment . 18 Social Demand..., doe. 19 Flexibility : *, 4 20.. * , SECTION IV: AN ANATOMY OF UNIVERSITY COSTS 21 What Cost? t , . , 21, Returns to Scale from University Expansion n* .) International Cross-Section Evidence 22 Within- Country Evidence -,. SECTION VI' COSTING' THE S UBJECT MIX '\ 12--__.: SubjdctCategorization 32 The International Cross-Section (.f 32 ' Within-Country Evidence 33, . Some Developed Countries Evidence...... 38 .... , SECTION VI: EVALUATING THE UNIVERSITY BENEFITS' 40, Why Earnings? 40 Do Earnings Reflec,t Productivity? 6-..1* 41 The Earnings Structure 1 44 The Employment Structure , .. 46 Income Distribution . k 49 Some Additional Dim4nsions 49, . ' . Nr SECTION VII: AlaSE FOR NONVOCAtIONAL,UNIVERITY . The Economic Efficiency of University E4,ansion 51 The Returnsby Field of'Specialization '% ; , Further Considerations , 55 , SECTION VIII: LIBERAL EDUCATION IN.DEVELOPING COUNTRIES ? 56 . The TechnolOgy-Led Advance: A Critique of the Paradigm Q:57 Education hnd Underdevelopment -' 58 ,. Ghana: The Imported Value System ., 59 - Malaysia: Universities as. Failed Change Agents 60. Some Generalizations' . ' 61 t * , SECTION IX: CONCLUDING REMARKS . .* , i PageNo. : 'REFERENCES '66 APPENDICES The In I-national. Cross-Section Data Base (TableA.1 to A.3) 73 The Evolution of Enrollment and Student Costs OverTime (kables.B.1 to B:9) '78 The lhudent Cost by Field of Study (Tables C.1 to C.43) 83 The Structure of Earnings (Tables D.1 to D.12) 103 The Employment Structure', (Tables E.1 to E.1.3) 108 University Utilization and Wastage (Tables F.1 to F40) 114 's Ah The Returns to Eduedffon b9 Sub pfr 11:1116.. (Tables G.1 to G.114 118' The Returns to Alternative. Investments (Tables H.1 to H.6) 123' Public Versus 'Private Sector Earnings (T4blea 1.1 to 1.5) 127 \ 0 c. SECTION I INTRODUCTION AND SUMMAR O 4 1.1 Higher education, the very top step of the learning ladder, sometimes finds itself at=the'botom of the hiearchy when considering priorities in educational spending. The recent'common,prescription for' economic deVelopment is' injections of badi- and especially vocational education., After all, it is extremely diffl.cult'to rationalfze wend- iture on another university when a high iircportion of the, country's poptlatio:Ois illiferate. - ) , Given this Setting, the puose of this paper, is to take a close look at the socioeconomic rationale of higher education provision in developing countries. This is done by reviewing the costs and-benefits associated with 2ftvest ent in higher educationas ,e whble and especially in different post-seqpn ary subjects. University costs,.and in i)*Iicu- 1.ar.-,tralef-its, are treat here in their broadest sense to arrive at the &tie-contribution of high r edUcgtion'to the standard of livingof the present and 'future ganerat onS. This socioeconomic evaluation of the higher education subsectoris performed by reference toa multi7country; multi-period data,set, which' hag been augmented b nonquantitative considerations L ' \ . Paper Outline 1.3 Beyond this introduction, the paper ontains eight additional sections and an Appendix. Section II documents some recent-trends in the illcpcation of education budgets around the world that' are.of interest I" to the sfibject matter of"this study and serves as the starting point of the remaining argument. Section III,is normative, in the sense of Spell- ing out the Criteriaof social choiCe-in education. The, set of usual criteria is *ended to include the satisfaction of social demand for education and' career flexibility because of rapid technological.change. 1 .4 'Higher education costs are tackledkattwo le41s. First, at 4 the aggregate uniVealty level (Section IV) and disaggregated by field of study (Section V). These two sections permit an analysib of the behavior of unit costs.as enrdilment rises and alto document costdifferences between various university facultieb. ,1.5* Septiori'vI deals with the quantitative