Chapter 13: Too Hungry to Read: Is an Education Subsidy a Misguided Policy for Development?
Parantap Basu* 1 Introduction Starting from the work from Mincer (1974), economists debated whether education necessarily promotes growth. There is greater consensus among macroeconomists than microeconomists that education accelerates growth (Barro, 1997). There is considerable disagreement among microeconomists about the returns to schooling (Card, 1999). Krueger and Lindahl (2001) present a detailed survey about these alternative views. Parente and Prescott (2000) make the point that education per se does not necessarily promote growth. What matters for growth is not just the level of knowledge but the exploitability of knowledge which in turn depends on the incentive structure of the economy. Parente and Prescott point out that significant barriers to riches exist across the globe because business is not free to innovate. These barriers are primarily due to the presence of irrational regulatory institutions with distortionary tax structure. The policy implication is that various kinds of subsidies to promote innovation could be helpful to promote exploitability of knowledge. An education subsidy could be one of these ‘incentivist’ policies for growth.1 While this focus on incentive is quite insightful in understanding the cross-country disparity in the standard of living, the issue still remains whether a blanket policy of subsidizing education works in economies where a vast portion of the population live in poverty and chronic malnutrition. The effect of malnutrition on productivity is particularly severe due to wastage of muscular strength, illness, infections and the loss of cognitive skills.2 The issue that I address in this short chapter is the following: is...
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