Skip to main content


A Review
George Psacharopoulos
T hat education is a form of investment that can contribute to
individual and social development is not a novel idea. Over
two centuries ago Adam Smith wrote:
A man educated at the expense of much labor and time... may be
compared to one... expensive machine.. . The work which he
learns to perform.. . over and above the usual wages of common
labor will replace the whole expense of his education (1776, p. 101).
Articles on education as investment appeared sporadically in the
first half of this century (for example, Strumilin
1929, Walsh 1935). But it was not until the late Figure 1
1950s that the subject became a separate field of
study-the economics of education. The spur was \
the realization that not all the increases in na- radeipa <
tional output could be accounted for by the tainment
growth of conventional inputs: physical capital, ttainment
labor, and land. The "residual" puzzle in growth m Earnin
accounting was solved by Schultz (1961a) and akAbility Lernn
others, who introduced human capital into the utcome
aggregatep roductionf unction. Cognitive
One way of analyzing the complex links between
education and development is illustrated in
figure 1. The direct relationship depicted by arrow 4 from school
to the labor market-is known as the "external efficiency of education"
and has received most attention in the literature, mainly from
economists. The triangular path (arrows 1, 3, and 6) from family
background to schooling and learning outcomes is known as the
(? 1988 The Intemational Bank for Reconstruction and Development/The World Bank 99
This content downloaded on Fri, 25 Jan 2013 14:43:08 PM
All use subject to JSTOR Terms and Conditions
"internal efficiency of education" and has been studied mainly by
sociologists and psychologists. In recent years, the availability of longitudinal
data sets has permitted some attempts to estimate the full
The first section in this article presents some of the principal findings
on the role of education in development that have been generated
in the past twenty years. The following section deals with a series of
debates that have appeared in the literature. The final section attempts
to draw some policy implications for educational priorities in
developing countries.
The Evidence This review is restricted to the effects of education most directly
related to a common notion of economic development. One is efficiency
in resource utilization, leading to higher income; another is more
equitable distribution of such income.
Labor Market Outcomes
There is widespread evidence that an individual's earnings increase
with each extra year of schooling. The explanation of human capital
theory is that education makes the individual more productive, not
only in the market place but also in the household.
As Welch (1970) and Schultz (1975) have put it,
education has a beneficial allocative effect or helps
the individual to deal with disequilibrium situations.
The empirical core of the human capital school
lies in the crossover shown in figure 2-the tradeoff
between a low level of education and earnings
today versus more education and earnings tomorrow.
Such a relationship has been documented
in practically every country that has data on ageearning
profiles by education. (See the appendix
for examples from the latest Brazilian census.)
Proper discounting of the costs and benefits associated with educational
investment (the minus and plus areas in figure 2) leads to
estimates of its profitability from both the private and social point of
view. Like the rate of return to any other project, the return to
educational investment is the discount rate that sets the net present
value of the net stream of benefits equal to zero. In a state subsidized
system the cost of education to the individual is the earnings forgone
while in school. From a social viewpoint, however, the cost of education
must include all resources used to provide education (for example,
teachers' salaries and the use of classrooms).
Figure 2
More education i- +
Less education
100 Research Observer 3, no. 1 (January 1988)
This content downloaded on Fri, 25 Jan 2013 14:43:08 PM
All use subject to JSTOR Terms and Conditions
Estimates of the returns to education are now available for over
sixty countries. Table 1 gives a regional summary and raises several
noteworthy points.
* The social returns to education in developing countries are at least
as high as any reasonable measure of the opportunity cost of capital
or a social discount rate. In other words, investment in people may be
more conducive to economic growth than investment in machines.
* Rates of return are highest in primary education, followed by
secondary and then university levels. For primary education, unit
costs are small relative to the extra lifetime income or productivity
associated with literacy. For university education, the opposite is
* The same diminishing returns apply across countries: the more
developed the country, the lower the returns to education at all
levels. The high returns to education in low-income countries must
be attributed to their relative scarcity of human capital.
* Private returns are higher than social returns at all levels-a result
of the public subsidization of education in most countries. The
discrepancy between private and social returns is greatest at university
level-which raises issues of equity as well as of how educational
expansion should be financed.
Other studies have estimated rates of return by field of study and
by sex. Table 2 shows that technical education and agronomy are
associated with lower returns than the more general subjects-a counterintuitive
result that is again due to the relatively high unit cost of
technical education (Psacharopoulos 1987a). And table 3 shows that
the rate of return is higher on women's education than on men's.
Although in all societies the absolute earnings of men are higher, the
opportunity. cost of study for women is often lower than for men.


Popular posts from this blog

Behavioral Targeting

What is Behavioral Targeting?
It  refers to a range of technologies and techniques used by online website publishers and advertisers which allows them to increase the effectiveness of their campaigns by capturing data generated by website and landing page visitors. When it is done without the knowledge of users, it may be considered a breach of browser security and illegal by many countries' privacydata protection and consumer protection laws.

Why Learn Behavioral Targeting?

How Behavioral Targeting will help my business Grow?

When a consumer visits a web site, the pages they visit, the amount of time they view each page, the links they click on, the searches they make and the things that they interact with, allow sites to collect that data, and other factors, create a 'profile' that links to that visitor's web browser. As a result, site publishers can use this data to create defined audience segments based upon visitors that have similar profiles. When visitors return…

Explore SMM tools to make you grow further and succeed in the digital world

Social Media Marketing (SMM) has arrived. We need to make use of some key tools here. We bring information about these to you.

1# Later – Instagram Scheduler Later is known as premium social media marketing tools to plan your visual content marketing.It’s an easy-to-use tool to schedule and manage your Instagram posts via any devices such as the computer, iPhone, tablet or android so that you can manage your account from anywhere. It has an ability to add team members and this is a keynote in this particular social media marketing tool.
Pricing: Free Plan: Available It has afree plan that allows you to publish up to 30 posts and 2 reposts per month on an Instagram profile. There are also a couple of things such as it helps to socialize with Facebook, Twitter, and other marketing tools as well.
Other Premium Plans: For Individuals: 9$ For Businesses: 19$, 29$, 49$

2# Oktopost – Social Media Management aimed atB2B Marketing Ocktopost is a social media management tool which is specifically design…


Is there any time in our Life where we are not Learning...???

if that's SO then how come we all are not Inspired and Excited about Learning?

How to combine the two Fun and Growth while Learning?

In previous times, before the trend of e-learning resources like studying management techniques, individuals who wanted to create educational material either to offer or for use within an company created paper-based material like guides, and rich the program with movie and sound material. Of course, publication posting, is still a big business. And the idea of generating an income by developing knowledge to be used in an educational or professional setting is still interesting for many individuals.
The conventional education and learning where a undergraduate gets to fulfill a lot of person & return his or her concepts is something that is losing with the e-Learning factor. There is just no physical contact & everything is just, exclusive when you discuss of e learning So, it is al…


The Internet is the new lifeline to people and social networking sites have become intensely popular. This is the time when websites and blogs are the new identity address. It acts like an equalizer and eliminates geographical restrictions over emotions or opportunities. However, even this great system is not devoid of problems. The most intense threat in this case is hacking. What is hacking?  It is basically a technological process using which people, other than the owner of the blog, social networking page or website, might get access to these pages without the owner’s permission. With the various tools and computer language scripts that are being developed, Hacking is also gaining momentum. Here we can attempt to enumerate some anti hacking tips that might help people to prevent their blogs from hackers. ·    Update – New version of the blogging software is released to overcome the problems in the older version. Get in the top of the game by constantly updating your blog page to the…

Obama success via Link-spirals

How were Obama & Romney Competing in Digital space

2008 was the hallmark for use of Technology in Politics.Worlds Politicians shifted their attention to Social-media not because they were fancied by it but Politicians understood their presence and engagement with the new breed of citizens via Digital medium is Vital.

One of the finest mix of digital communication channels that even the techo-wizards are wondering TheDigital worldknows of Link wheel a normally used slang in digital-domain for linking their website with their own online properties by wheel-spoke arrangement.
The Secret is now out its not the Link Wheel but Link Spirals that Mr. Obama and his Genius Designed and Executed systematically. Politicians are now devising the Digital strategy as an Integral part of their Campaigns to ensure their win in polls.
Online Consultants have conducted enough Deep Research and have come out with the Best Practices Guide for Politicians going for Polls which enumerates detailed Do's a…