Chapter 4: Can Cost–Benefit Analysis Guide Education Policy in Developing Countries?
Emmanuel Jimenez and Harry Anthony Patrinos 1 Introduction If the true test of the value of an economic theory is longevity, the human capital model passes with flying colors. Its basics are simple and empirically testable (and generally validated). An individual will invest in his or her human capital – an additional year of schooling or on-the-job training – as long as the marginal gain from that investment exceeds its added cost. The gains extend over a lifetime and are discounted to the present. If some of these gains accrue to others, governments need to stimulate individuals to take them into account in making decisions. Public action may also be needed if poor individuals cannot mobilize the resources to finance the investment now, despite a promise of big gains in the future. This human capital framework has been a driving force for the huge investments in education in developing countries in the past 40 years. In addition to education’s social benefits, the recognition of its long-term economic benefits has spurred finance and budget ministries to action. In global terms, education spending has mushroomed from 3.7 percent in 1970 to 4.5 percent of GDP in 2002 (see Figure 4.1). This has led, by some accounts, to profound increases in the number of young people going to school, particularly at primary levels. There were more than 688 million children enrolled in primary schools globally in 2005, up 6 percent from 1999 alone. Worldwide average schooling level for the population was 5.0 years of schooling...
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