EDUCATIONAL INVESTMENT IN DEVELOPING COUNTRIES

In the context of economic development, the educational product as a whole not only includes components of consumption (enjoyment of the fuller life permitted by education) and direct investment (increased earnings to the educated person, i.e. “internal” gains of education), but also “external” gains which accrue to other members of the community, i.e. the economic and social system at large.

The most important characteristic of educational investment is externality. This aspect of external benefits of education lies in the change in the social and cultural climate, incident to the widening of horizons, which education entails. At the same time, this benefit result is not an automatic consequence of general education, but only of the proper type, quality and quantity of education. Supply of professional people who cannot be absorbed into appropriate positions may readily become an external diseconomy and source of instability.

Apart from the factor of externality, educational investment has certain other characteristics:
The product of education outlays carries the joint features of consumption and investment. For this reason, the share of resources allocated to education cannot be considered wholly an investment outlay. The consumption component of education may be divided into current consumption (the delights of attending school) and the future consumption (the ability to appreciate life more fully later on). Future consumption being the major element, the consumption component is largely in the nature of a durable consumer good and hence investment. Thus the essential distinction is not between consumption and investment aspects of education, but between education investment which generates imputed income (fuller life later on) and education investment which generates increased factor earnings to the labour supplied by the educated person.

The imputed-income component of education tends to be of particularly great importance at the early stages of development. Extension of secondary education becomes the primary goal of education policy in countries with a low level of education capital stock with extension of elementary education and technical training at the next level of capital stick and expansion of higher education at a more advanced stage.

Secondly, investment in education is characterized by a gestation period which is substantively longer than that of many other types of capital formation. Periods of ten to twenty years may be involved, depending on how far the education process is carried, and even longer spans may be involved if teacher training is taken into consideration. Even though certain skills may be acquired fairly rapidly, especially if a previous foundation is laid, the educational capital stock cannot be changed quickly, particularly for the more advanced type of education. This is a constraint in investment planning requiring public policy guidance and planning.

A further feature of investment in education is the relatively long useful life of the educational asset as compared to other competing investments. Obviously, there may well arise a difference between the government’s and the private investor’s allocation of share for education in investment outlays. The relatively long, useful life makes it necessary that the type of education be chosen in order to meet future demands in particular skills. This applies more to specialized and technical education. Thus, educational planning in the context of a longer-term development view is essential.

Finally, the resource cost of education not only includes teachers’ salaries, buildings and equipment, but also the opportunity cost of lost income on the part of the student. Where there is a general surplus of labour supply, the opportunity cost of foregone earnings will be small or non-existent. Other components of education cost (school teachers’ salaries in particular) tend to be relatively high in developing countries. So, even though the income stream from a given factor input into education will be large, the rate of return on educational investments is therefore not as high.

Sensible education targets must be developed by considering the needs of the particular economy and the demands posed by its specific plans in order to absorb additional supplies of educated manpower. The matter of educational priorities is of vital importance. Unless the right kind of education is provided, setting overall targets has little meaning. Educated persons who are unable to find suitable jobs, fail to add to the national product and also become a source of political instability. Since the cost of various types of education differs greatly, the very setting of overall targets has to be based on the composition of education supply.

Whether undertaken privately or in the public sector, the necessity for investment planning cannot be denied. Left to household decisions, neither market knowledge, nor foresight nor financial requirements are present which are needed to secure adequate supplies. This is especially the case in developing countries where the whole attitude towards education has to overcome conventional barriers and become reoriented to the development process.