OXFORD BULLETIN OF ECONOMICS AND STATISTICS, 58, 1 (1996)0305-9049

HUMAN CAPITAL IN ECONOMICDEVELOPMENT

EDITORIAL INTRODUCTION

John Knight

Research interest in the role of education in the process of economicdevelopment has grown in recent years. There is a variety of reasons,including the following. First, evidence that education does indeed repre-sent human capital has accumulated, for instance through the incorpora-tion of direct measures of cognitive skill into economic analysis. Second,high quality microeconomic data sets, some specifically designed forresearch on human capital, have proliferated in developing countries.Third, the positive correlation between the remarkable success of some ofthe East Asian countries and their educational effort has been noted, andcausality has been attributed to education. Fourth, the stress which 'newgrowth theory' places on human capital and externalities provides insightsinto the role that education might play in the development process. Fifth,the beneficial interactions between education and such socioeconomicvariables as fertility, health and gender discrimation are now betterrecognized.

Although not all education produces human capital and not all humancapital is produced by education, this special issue concentrates on educa-tion. It contains an international cross-section analysis and eight countrycase studies based on microeconomic survey data. Three large Asiancountries (China, India and Pakistan) are represented, a Caribbeancountry (Jamaica) and four African countries (Cote d'Ivoire, Ethiopia,South Africa and Uganda). No attempt is made at comparative analysisamong the case studies: different questions are posed in different coun-tries. Rather, the special issue gives the flavour of the sort of researchthat is going on.

Contributors pose the following basic questions, in order ofappearance:

Does educated labour raise the level of output or its rate of growth?How, and how much, does education raise the productivity of ruralworkers?

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Is there a case for expanding private education on the basis of itsmeasured higher quality and efficiency?How do private incentives, economic circumstances and governmentpolicies affect access to education?How and why does the education of women assist that of theirchildren?How, and how much, does education influence the fertility ofwomen?Does family background represent human capital, or connections in anon-competitive labour market?Does the decline in the rate of return to primary education representmarket forces or interventions?As the private rate of return to primary education is now low, whatkeeps up the demand for it?

Thus, two papers are concerned with the education-productivity relation-ship, three with the demand for and access to education, two with therelation between education and the labour market, one with the quality ofeducation and one with an educational externality.

We turn to the research results. Distinguishing between educationalflows and stocks, GemmeZ! concludes from his cross-country analysis thateducated labour raises not only output but also - in line with endogen-ous growth theory - its rate of growth. Moreover, the educational levelto which an economy is most responsive is shown to rise with the level ofeconomic development.

Alderman, Behrman, Ross and Sabot find that education raises cognitiveskills and hence earnings in the wage labour market of rural Pakistan -another piece of evidence in favour of the human capital capital interpre-tation of education. Their analysis shows that empirical results are sensi-tive to corrections for various types of bias, not always made byresearchers in this field.

Kingdon also uses tests of cognitive sills and of natural ability, but inorder to measure the productivity of education in the narrower sense. Sheshows that private schools in the state of Uttar Pradesh in India provideeducation of higher quality even after controlling for selectivity effects,and argues that government restrictions on private education aremisplaced.

Knight and Li, examining the determinants of educational attainmentand enrolment in China, show that an institutional divide generates verydifferent outcomes in urban and rural areas, placing the latter at adisadvantage. They find that income levels and incentives are importantin explaining the pattern of rural dropping-out, and that parental educa-tion is a powerful influence on enrolment in both rural and urban China.

Handa finds that maternal education assists the post-primary schoolingof children in Jamaica as in many countries. There are alternative expla-

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EDITORIAL 7

nations: that maternal education is an argument in the productionfunction of human capital formation, and that education accords womengreater bargaining power within the household which they use to promotethe education of their children. The evidence supports the bargaininginterpretation.

Appleton analyses the influence of education on the fertility of womenin Cote d'Ivoire, an influence which operates through the two proximatedeterminants of fertility, age at marriage and length of breast feeding. Hefinds that education delays marriage and shortens breast feeding, but thatthe negative effect on fertility of the former outweighs the positive effectof the latter.

Krishnan examines the effect of family background on earnings inurban Ethiopia: does it represent human capital acquired out-of-school -the conventional interpretation - or influence in an imperfectly competi-tive and directed labour market? Her tests imply that connections werecrucial in the public sector under the Dergue, whereas productive traitsacquired from parents were rewarded in the private sector.

Mou finds that rates of return to primary education among Africans inSouth Africa have fallen to low levels whereas their post-primary returnsremain high. His explanation is partly in terms of increased relativesupply depressing the wage premium on primary education and partly interms of an increasingly powerful trade union movement compressing thewage structure from below.

Appleton, Hoddinott and Knight consider an educational system which isdemand-constrained at the primary but supply-constrained at the post-primary level. Illustrating from Cote d'Ivoire and Uganda, they show thatthe demand for primary education may be high despite a low private rateof return because it provides the chance of continuing in education: the'expected' return exceeds the conventionally estimated return.

In which directions should future research be headed? This collectionof current reserarch provides some pointers. At the methodological levelthere is a need for data sets specifically designed to test particularhypotheses, and for care in controlling for variables and correcting forbias in estimates derived from what are inevitably complicated inter-related systems. There is a case for further studies, across different typesof economy, of the education-productivity relationship. This is especiallytrue of the rural self-employment sector, where the majority of the labourforce are likely to be found, and of the relation between education andinnovation. The conventional wisdom that primary education yieldshigher social rates of return than post-primary has been seriously frayedat the edges: it requires further examination which recognizes that thebeneficiaries of educational expansion are likely to work in the rural self-employment sector.

More attention should be given to educational access, distinguishingdemand- and supply-constrained systems, explaining gender differences

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and examining the case for user charges, throughout bearing in mind bothequity and efficiency objectives. The effects of education in labourmarkets characterized by inflexibility and elements of job- and wage-competition are important, for instance how education influences labourallocation and unemployment. Educational quality issues have been rela-tively neglected by economists, and yet in many developing countriesimprovements in quality may involve a higher social rate of return thandoes the expansion of quantity. The quality of education - valued interms of its reward in the labour market - requires rigorous analysiswithin a cost-benefit framework. Finally, the externality-prone interactionbetween education and other socioeconomic variables deserves moreattention. Much of the new research will involve extensions of andimprovements on conventional estimates of private and social rates ofreturn.

Institute of Economics and Statistics,University of Oxford

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