Sustainable development of low income countries through investment in tertiary education

Transcription

1 MPRA Munch Personal RePEc Archve Sustanable development of low ncome countres through nvestment n tertary educaton Nobnkhor Kundu and Asma Banu Assstant Professor, Comlla Unversty, Bangladesh, Drector, FnExcel Lmted, Bangladesh 7. May 2014 Onlne at MPRA Paper No , posted 24. June :20 UTC

2 Abstract To counterbalance the challenges of globalzaton, rasng the superorty of our tertary educaton to global standard s very sgnfcant. Tertary educaton s the essental enabler of the human captal of the twenty-frst century that demands a set of new competences. It draws lessons for developng countres where polcy makers have set out procedure to buld a tertary educaton n whch hgher prortes and future strateges would form the center of the sustanable development strategy. In the case of low-ncome economes, whch are keen to nvest n tertary levels of educaton but the government budget s constraned, ths study recommends the formaton of fnancng sources. In addton, t s necessary to develop an effectve lfelong learnng system to provde contnung hgher educaton and skll upgradng to persons after they have left hgher educaton n order to provde the changng sklls necessary to be compettve n the new global economy. Ths paper analyses the mportance of nvestment n tertary educaton wth low-ncome economes to ensure a gradual sustanable development over the years. It s apparent that Bangladesh wll acqure potental gans from nvestment n tertary educaton. Keywords: Hgher Educaton, Economc growth, Sustanable Development JEL Classfcatons: I21, O47, Q01 I. Introducton Prevous studes on low-ncome economes place heavy emphass on nvestment n prmary educaton, partly due to the prmary sector orentaton of these economes and hgh rates of returns assocated wth prmary schoolng. Gathak (1995), Papagergou (2003) and Psacharopoulos (1985, 1994), emphaszed prmary educaton as a necessary and adequate ngredent for economc growth and development n developng countres, especally those wth low ncome. Ths argument s based on the economc structure of these countres and the estmated hgh rates of return on nvestment n prmary educaton. Lau, et al. (1991) and Psacharopoulos (1994), among others, argue that, based on the rate of returns, unversal prmary educaton s one of the most sgnfcant factors enhancng economc development n low-ncome economes. Ther studes fnd that the rates of return on prmary educaton are hgher n poor countres, because wages earned by addtonal years of schoolng exceed by far the ntal cost of schoolng. Most low-ncome economes, however, are characterzed by poverty, low state nvestment, lmted numbers and qualty of educatonal and legal nsttutons, nadequate fnancal resources and captal market mperfectons. These factors combne to prevent adequate nvestment n human captal. Thus, the stock of sklls and productve knowledge emboded n people remans low and consequently lmts economc growth. Prmary schoolng s nadequate for the purpose 1

3 of adoptng the sophstcated technology that characterzes a modern economy. Secondary and tertary educaton s of greater sgnfcance for technologcal nnovaton, absorpton and dffuson (Engelbrecht, 2002). Human captal theory, however, postulates a postve relatonshp between the levels of educaton, the man way of acqurng human captal, and labor productvty. That means hgher levels of educaton, ceters parbus, contrbute more to economc growth than lower levels of schoolng. Human Development s a concept whch consders both quanttatve and qualtatve aspects of sustanng lfe, amng at ncreasng human welfare. Movng forward n a knowledge based economy, human captal becomes one of the major buldng blocks towards a sustanable growth path. Basc educaton should provde the foundaton for learnng, and tertary educaton should develop core sklls that encourage creatve and crtcal thnkng. As a consequence, tertary educaton s essental, and tenacty of any naton to development, advancement, progress and sustanable growth and ts effectve returns contrbute towards development and advancement of a naton, whch wll get beneft from generaton to generaton. Educaton provdes a postve gudance to our future generaton and helps to accelerate development of the naton. II. Lterature Revew UNESCO Drector General Kochro Matsuura mentoned of a 'vertable revoluton' n Hgher educaton wth the dynamcs of acceleratng demand, dversfcaton of provder s mpact of nformaton and communcaton technologes, and globalzaton (UNESCO World Conference on Hgher Educaton, 2009). Investment n human captal, through nvestment n tertary educaton, s a necessary ngredent to economc growth and development; although t s not suffcent (Cypher and Detz, 1997). For a long tme, the development of human captal was regarded as a requrement for the growth and development of any economy (Schultz, 1961). Economc growth n future depends on the knd of educatonal nvestment made at present, therefore, defnng a fnancng polcy for educaton that promotes the country s human captal at hgher levels, together wth complementary polces to enhance ther effectve use n a way that can make the system sustanable, should address ths problem n the long-run. Not only s educaton sgnfcant for economc growth, t also holds consderable prvate benefts for ndvduals. These benefts accrue ether drectly or ndrectly. Economc development strategy should lay emphass on nvestment n human captal, as human resources are the most sgnfcant resource of the country. Jan. P. Voon (2004) says that the rate of return s the rate of nterest that equates the PDV of the costs and benefts of acqurng a unversty degree. The general cost and beneft framework s expressed as: n Bt m Ct PV 0 t 1 t n 1 1 r t 1 r t Or, n t 1 Bt Ct 1 r t 0 2

4 where, C t s the opportunty cost of unversty degree n year t; degree n year t; n s the length of educaton; n 3 Bt s the beneft of unversty m s years n workforce or, ndvdual earnng lfe span assumed to termnate at the age of 65 when the same cohort of the graduates retres from the workforce; r s nternal rate of return to the nvestment, n ths expresson for the rate of return t s assumed that all costs are ncurred n years 1 to n, and benefts accrue between years n and m). Cost ncludes any forgone earnngs, sacrfced because the ndvdual s n school and does not work. In addton to forgone earnngs, households face drect costs n spendng a chld to school. These costs may nclude school or unform fees, payments for books and other materals, transportaton costs, or other unoffcal fees to ensure a chld get the attenton of a teacher. Even though the dollar value of the prvate benefts of an educaton s lkely to far exceed the dollar value of the prvate costs, a value for educaton can be found because future benefts are much more heavly dscounted than costs ncurred more mmedately. Once the prvate rate of return to schoolng s estmated, t can be compared to the nternal rates of return to other household nvestments. Economsts argue that one cannot smply add up the costs and compare them to the benefts because money receved n the future s worth less than money that can be spent today. Such postve tme preference s the result of both uncertantes about the future. Future benefts need to be dscounted to compare them to current cost. One way of dong so s to compare the present value PV of all costs and benefts. Accordng to Psacharopoulos (1994), the elaborate method follows an algebrac defnton of the rate of return whch s the rate that equates a stream of beneft to a stream of costs for a gven perod. In ths method of prvate rate of return calculaton, the only cost of the educaton project under evaluaton s the opportunty cost of stayng on n school beyond the age of 18 nstead of workng n the labor market. The data requrement of ths method s qute demandng and s usually not avalable for most developng countres. The basc earnngs functon s due to Mncer (1974) and nvolves the fttng of a sem-log ordnary least square regresson usng the natural logarthm of earnngs as the dependent varable, and the years of schoolng, potental years of labor market experence and ts square as ndependent varables. In ths sem-log earnngs functon specfcaton, also used by Appleton et al (1999), the coeffcent on years of schoolng can be nterpreted as the average prvate rate of return to one addtonal year of educaton regardless of the educaton level to whch ths year of schoolng refers (see also Appendx). Ths study estmated the effects of three forms of human captal on schoolng, namely formal educaton, experence provded by employers, and ts square pursued by employees. Human captal theory suggests that hgher educaton rases the productvty of workers by mpartng useful knowledge and sklls, hence rasng workers future ncome by ncreasng ther lfetme earnngs (Becker, 1964). Becker (1964) and Mncer (1974) provde an explanaton that lnks nvestment n hgher educaton wth workers wages. Over the past thrty years or so, hundreds of studes have been conducted to estmate rates of return to educaton (RORE); most such studes show that hgher schoolng s a crucal factor n explanng varatons of salary and wages n well developed countres (Cohn & Addson, 1998). Comparatve studes have been conducted n some less developed countres, focusng on nvestment n hgher educaton (Psacharopoulos, 1985, 1994). At tertary level, the graduates acqure sklls to cope wth logcal and analytcal reasonng tasks, as well as the techncal

5 knowledge requred n the current era of globalzaton (Colclough, 1982). Endogenous growth models emphasze the mportance of nvestment n human captal and the potental gans from the transfer of technology from countres wth a more advanced study capacty to the low-ncome countres, because economc theory suggests that these levels of educaton help a country to make the transton from a low-ncome to a hgh-ncome economy. The study draws sgnfcant lessons for Bangladesh from the mpressve nvestment n human captal and the economc growth acheved by the selected model countres. Ths study explores nterrelated ssues n development economcs. An objectve of ths study s to hghlght the sgnfcant role of tertary levels of educaton for sustanable development of future generaton of low-ncome economes. More specfc objectves of ths study are to dentfy- the condtons under whch the expanson of educaton at tertary levels would be frutful and sustanable for low-ncome economes, lke Bangladesh. Ths study, followng the questons, nvestgated:. Why s the mportance of tertary educaton for long-run growth of low-ncome economes?. What are the sources of nvestment n these tertary levels of educaton for sustanable development of future generaton to overcome the resource constrants n respect of fnancng educaton n low-ncome economes? III. Data and Methodology Ths study employs secondary data. It draws on a varety of sources, ncludng books, theses, academc journals, nsttutonal reports and the nternet. The collecton of data nvolves an extensve survey of the lterature selected n accordance wth the stated study questons and objectves. Exstng lterature on the contrbuton of educaton on long-term economc growth and sustanable development s generally revewed. The study focuses on those studes that deal wth the relatonshp between tertary levels of educaton and sustanable development of future generaton n selected low-ncome countres. Investment n schoolng and other factors responsble for the sgnfcant mpact of educaton on economc growth n these economes are analyzed. It revews theoretcal methods of nvestment n tertary educaton of low-ncome economes and assess s the effectveness of nvestment n tertary educaton levels. Ths study, based on endogenous growth theory and emprcal evdence, argues that tertary levels of educaton are essental n order to develop human captal capable of drvng economc growth. Endogenous growth models emphasze the mportance of nvestment n tertary educaton of low-ncome economes and the potental gans from the transfer of human captal from low-ncome countres to the more advanced countres. IV. Returns to Schoolng Analyss IV.1 Gross Enrollment Rates Hgher educaton nfluences economc well-beng n three ways. Frst, the drect expendtures by the nsttutons, ther employees, and ther students mpact the local economy. Ths spendng multples through the local economy untl the mones are used to purchase goods and servces 4

6 from outsde the local area. Second, hgher educaton provdes fnancal and non-fnancal benefts to the ndvdual who pursues an advanced educaton and to socety n general. Thrd, nsttutons of hgher educaton are ncreasngly focused on knowledge creaton. Thus, unverstes are sources of key study and development nnovatons that smultaneously can be benefcal to socety and conducve to economc growth (OECD, 1998). People wth more years of schoolng tend to earn more than people wth fewer years. Useful thnkng about educaton and nvestment and hgher educaton produces human captal. The expectaton s also that these nvestments wll yeld a postve return. By attendng school, an ndvdual hopes to acqure human captal, whch makes that ndvdual more productve, and therefore, better compensated. Table-1: Changes n Schoolng, Gross Enrollment Rates, by regon, Regon Prmary Secondary Tertary East Asa/ Pacfc Europe/Central Asa 99.3 a a a 46.0 Latn Amerca/Carbbean Mddle East/North Afrca b South Asa Sub-Saharan Afrca b b Hgh Income a Due to nsuffcent data for 1970, the values for Europe and Central Asa refer to b Values refer to the late 1990s. Source: World Bank, World Development Indcators onlne. Worldwde, gross enrollment refer to the total number of chldren enrolled n a gven school category dvded by the number of chldren of the age group that offcally corresponds to the levels of schoolng, and net enrollment rates refer to enrollments of only those of the relevant age group, n any type of tertary educaton amountng to about one out of every four members of the age group. In the hgh-ncome countres, the rate s close to 60 percent; n the mddle-ncome natons, t falls to 22 percent; and n the low-ncome natons, t drops to 10 percent. Internatonal evdence also shows that no country could become an economcally advanced country, f the enrolment rato n hgher educaton s less than 20 per cent. In fact, we fnd no country n the group of the developed countres whose enrolment rato n hgher educaton s less than 20 per cent, and conversely we fnd very few countres wth an enrolment rato of above 20 per cent among the developng countres. The mportance of hgher educaton further ncreases n the era of nternatonal competton and globalsaton. Internatonal experence shows that t s only those countres that had bult up hgh qualty human captal stocks, through good hgher educaton systems, could reap the benefts of globalsaton (e.g., East Asan economes), and countres that do not have stocks of qualty human captal suffered the most from the polces of globalsaton and structural adjustment (e.g., countres n sub-saharan Afrca). Gven all ths, t s mperatve that socetes pay adequate attenton to hgher educaton. Ths s more sgnfcant, f socetes would lke to transform themselves nto prosperous economc tgers. 5

7 IV.2 Returns to nvestment on Schoolng Tables 2 and 3 present estmates of annual prvate and socal nternal rates of return for schoolng by ncome categores. The results are from a meta-analyss by World Bank economsts, Psacharopoulos and Patrnos (2004). The authors compled the results of nternal rate-of-return calculatons for over 75 natons. Some of these studes refer to outcomes as far back as the late 1950s, whle others refer to the 1990s. At all levels of schoolng, prvate rates of return may be hgher n low-ncome economes than hgher-ncome economes. Ths may seem surprsng, gven the much hgher wages and salares workers earn n hgh ncome natons. But rates of return measure somethng dfferent than the levels of earnngs. Take the case of graduates of tertary educaton (table 2). Table-2: Returns to nvestment n educaton by level, full method, latest year, averages (%) Regon Prvate Rate of Return Socal Rate of Return Prmary Secondary Hgher Prmary Secondary Hgher Asa * Europe/Mddle East/North Afrca* Latn Amerca/Carbbean OECD Sub-Saharan Afrca Source: G. Psacharopoulos and H. Patrnos, returns to Investment n Educaton: A Further Update, Educaton Economcs 12, no. 2 (August 2004) *Non-OECD. Table 3 also fnds, as expected, that the returns to schoolng tend to be greater the poorer s the country. Ths s especally evdent when comparng low-ncome economes to the hgh-ncome economes. Ths may be due to much larger pay dfferentals between tertary and prmary school graduates. Or t may reflect opportuntes tertary school student have to earn some ncome whle studyng (so there s less cost from foregone earnngs), ncludng recept of government stpends for attendng a school, a common practce n many developng natons. Table-3: Returns to nvestment n educaton by level, latest year, averages ncome group (%) Per-capta ncome group Mean per capta(us$) Prvate Rate of Return Socal Rate of Return Prmary Secondary Hgher Prmary Secondary Hgher Low ncome ($755 or less) Mddle ncome (to $9265) Hgh ncome ($9266 or more) 22, Source: G. Psacharopoulos and H. Patrnos, returns to Investment n Educaton: A Further Update, Educaton Economcs 12, no. 2 (August 2004). The relatve gap between prvate and socal returns s especally large for tertary schoolng n low and mddle ncome natons. Ths reflects the relatvely hgh per pupl cost and hgh degree of state subsdy for tertary educaton, often ncludng free tuton. The classc pattern of fallng returns to educaton by level of economc development and level of educaton are mantaned (see Tables 2-3 and Fgures 1-2). Also, n the updated data set the prvate returns to hgher educaton are ncreasng. These new results are based on sx new observatons and updated estmates for 23 countres snce the last revew (Psacharopoulos, 1994). 6

8 Fgure-1: Returns to nvestment n educaton, latest year, averages by low-ncome group (%) Prvate Return Socal Cost 0 Prmary Secondary Hgher Prvate returns are hgher than socal returns, where the latter s defned on the bass of prvate benefts but total (prvate plus external) costs (Fgure 1). The average socal rates of return to schoolng account for only socal cost, not socal benefts, hence our use of quotaton marks around the word socal. By ncorporatng the full cost of schoolng but not any postve externaltes, socal return for a gven level of schoolng must be less than the correspondng prvate return. Ths s because of the publc subsdzaton of educaton and the fact that typcal socal rate of return estmates are not able to nclude socal benefts. Nevertheless, the degree of publc subsdzaton ncreases wth the level of educaton, whch has regressve ncome dstrbuton mplcatons. Overall, the average rate of return to another year of schoolng s 10%. Fgure-2: Prvate returns to nvestment n educaton, latest year, averages by percapta ncome group (%) ,530 Prmary Secondary Hgher Returns to educaton by level of country ncome are presented n Table 3 and Fgure 2 (Psacharopoulos, 1994). The hghest returns are recorded for low-ncome and mddle-ncome countres. Ths update ncludes new country estmates and updated estmates for 42 countres. Average returns to schoolng are hghest n Latn Amerca and the Carbbean regon and for the sub-saharan Afrca regon (Table 4). Returns to schoolng for Asa are at about the world average. The returns are lower n the hgh-ncome countres of the OECD. IV.3 Coeffcent on Years of Schoolng Tables 4 and 5 present estmates of annual prvate and socal nternal rates of return for schoolng by ncome categores. 7

9 Table-4: The coeffcent on years of schoolng: rate of return (Based on Mncer Becker Chswck): regonal averages Regon Mean per capta (US$) Years of schoolng Coeffcent (%) Asa* Europe/Mddle East/North Afrca Latn Amerca/Carbbean OECD 24, Sub-Saharan Afrca Source: G. Psacharopoulos and H. Patrnos, returns to Investment n Educaton: A Further Update, Educaton Economcs 12, no. 2 (August 2004).*Non-OECD These results are from a meta-analyss by World Bank economsts, Psacharopoulos and Patrnos (2004). In the hgh-ncome countres, the coeffcent on years of schoolng s 7.4 percent; n the mddle-ncome natons, t ncreases to10.7 percent; and n the low-ncome natons, t rses to 10.9 percent (table 5). Table 5: The coeffcent on years of schoolng: mean rate of return (Based on Mncer Becker Chswck): Per-capta ncome group Per-capta ncome group Mean per capta (US$) Years of schoolng Coeffcent (%) Low ncome ($755 or less) Mddle ncome (to $9265) Hgh ncome ($9266 or more) 23, Source: G. Psacharopoulos and H. Patrnos, returns to Investment n Educaton: A Further Update, Educaton Economcs 12, no. 2 (August 2004). Globally, the percentage of the age cohort enrolled n tertary educaton has grown wth the most dramatc gans n upper mddle and upper ncome countres. In low-ncome countres tertarylevel partcpaton has mproved only margnally. Sub-Saharan Afrca has the lowest partcpaton rate n the world. In Latn Amerca, enrolment s stll less than half that of hgh ncome countres. There s a general presumpton that hgher educaton s not necessary for economc growth and development. Wthout realzng the mportance of hgher educaton n development, many lowncome countres tend to gnore hgher educaton. Analyzng the contrbuton of hgher educaton to economc well-beng, the hgher educaton has been gven great socal responsbltes, n harmony wth the enormous needs and expectatons of the socety. Hgher educaton s one aspect, whch not only enhances knowledge but creates awareness n socal and economc development. Ths educaton wll ultmately lay out the economc and socal well beng of an ndvdual. The socal return ncludes all costs entaled n the provson of schoolng. These costs must be taken nto consderaton. On the beneft sde, schoolng benefts the ndvdual through hgher earnngs but schoolng may also produce a postve externalty and potental postve externaltes from schoolng. More schoolng, especally hgher educaton, may also lead to technologcal progress that s not fully captured by prvate returns. More schoolng has benefts whch s why t s consdered a mert good. Health clncs and tube wells for clean water mprove health and fertlty externaltes, and educatng women reduces chld mortalty, fertlty, maternal mortalty, 8

10 and spread of HIV/AIDS etc. By vrtue of the respect, hgher educaton can create awareness n socal and economc development. It s sgnfcant to remember that even n the 21 st century there great s the mportance of tertary educaton for long-run growth. It s also necessary to mprove the qualty and effcency n hgher educaton, because they are an ntegral part of an ordered socety. In addton, hgher educaton s also a publc good at least a quas-publc good, benefts from whch are not confned to the ndvduals that go to unverstes, but also the socety at large and have profound postve effect on economc growth and development. Evdence can be cted from East Asa. Accordng to The World Bank, 60% to 90% of growth acheved n Japan and other East Asan ndustralzed countres s the result of human captal development rather than natural resources and fnance. Whle we must treat such fndngs wth cauton because economc factors cannot be separated from wder socal and nsttutonal factors, they underlne the crtcal sgnfcance of tertary educaton. V. Fnancng Problem of Tertary Educaton In poorer natons, educated workers are relatvely scarce, often makng schoolng, especally tertary educaton, an nvestment wth a hgher rate of return than n advanced economes, where educated workers are far more abundant. Gven the relatve scarcty of students wth a tertary educaton n poorer natons, the pay premum to havng such an educaton may be greater than the relatve pay gap between unversty and hgh school graduates n rcher natons. It s the relatve scarcty of labor sklls, a combnaton of the strength of labor demand and the extent of labor supply, whch determne the attractveness of schoolng as an nvestment. The emergence of hgher educaton was prompted by several factors: (1) Demand for tertary educaton ncreased much faster than the prmary and secondary could cope wth; and (2) the government's nablty to moblze fnancal resources needed to establsh and run an adequate number of hgher educaton nsttutons wth requred enrolment capactes. The contnuous wdenng of the gap between the supply of and demand for hgher educaton opened up new opportuntes; prvate entrepreneurs, phlanthropsts and socal leaders stepped n to fll ths gap. In addton, by ths tme globally and natonally, there was a general shft n deology, wth a preference toward prvatzaton and market-based provson of hgher educaton (Perkns et al., 2006). In the current era of globalzaton, economc growth and development wll be stunted n lowncome economes unless they nvest adequately n hgher levels of educaton and defne economc polces that enhance the effectve use of advanced sklls wthn the economy. Although nvestment n tertary educaton remans poor low-ncome economes, more harm than good wll result from expandng tertary educaton, unless acceptable qualty can be ensured. The 21 st century focus should be on applyng rgorously already establshed qualty standards and consoldatng and ratonalzng exstng unverstes, before nvestment s made on expanson n tertary educaton. The problem of resource scarcty added further to the problem. But gven the nter-dependence of one layer of educaton wth the other, hgher educaton becomes crtcally sgnfcant for developng and sustanng a good qualty prmary and secondary educaton. It s also a crtcal factor necessary for economc growth and development and also for ts sustenance. In the case of lower ncome economes, where there s a concentraton on nvestment n tertary levels of educaton but the government budget s constraned, ths study recommends the creaton 9

11 of Publc Prvate Partnershp (PPP) and students Bank loan (low-nterest) by nternal sources. Ths can partly be fnanced through borrowng at low nterest rates from the Internatonal Development Assocaton (IDA) of the World Bank Group by. Besdes, scholarshps and socal support to students are becomng ncreasngly sgnfcant for attanng qualty and effcency n hgher educaton. Investment n tertary levels of educaton has helped formerly low-ncome countres such as Tawan and Sngapore to attan vast ncreases n economc growth. Low-ncome countres, such as Bangladesh, should follow these success examples by nvestng n hgher levels of educaton. Ths study suggests how Bangladesh can draw lessons from the success stores of Tawan and Sngapore of her nvestment n hgher levels of educaton contrbuted to ther economc growth. Further, t suggests an educaton-fnancng mechansm for Bangladesh and a framework that can be used to desgn meanngful educaton polces for sustanable growth and development of country. The World Bank s polcy approach to fnd mechansms that can sustan hgher educaton by proposng chargng student fees and prvatzaton has some defnte mert (Samoff and Carrol, 2003). It s encouragng to note that n 2010 the Mnstry of Educaton, Government of Bangladesh (GoB), wth the assstance of the World Bank (IDA), has undertaken, through the Unversty Grants Commsson (UGC) of Bangladesh, a hgher educaton qualty enhancement project (HEQEP) to mprove the qualty of teachng, learnng and study capabltes of hgher educaton nsttutons of the country. Actvtes nvolvng the promoton of academc nnovaton, the buldng of nsttutonal capacty of the unverstes and the rasng of connectvty capacty n the hgher educaton sector are consdered to be crtcal for unverstes n Bangladesh for ntatng postve mpacts on developments. VI. Concluson The phenomenal growth of unverstes ndcates the sgnfcant role they play n mpartng hgher educaton n a low-ncome economy lke Bangladesh. These unverstes produce much needed hghly sklled manpower. Many of ther graduates are employable both locally and nternatonally. The number of students that go to foregn countres for undergraduate studes has decreased. Ths saves a huge amount of foregn exchange remttance earnngs. The graduates of these unverstes contrbute substantally to natonal and nternatonal development. The demand for hgher educaton wll ncrease further n future. Wthout nvestment, natonal demand for hgher educaton cannot be met. Both government, publc prvate partnershp (PPP) and Internatonal Development Assocaton (IDA) of the World Bank Group must supplement and complement each other. The man pont drawn from ths study s the mportance of nvestment n educaton, partcularly n the tertary level. There s much evdence on the postve mpact of educaton on productvty and development. Tertary educaton should, therefore, be stressed partcularly the present world of nformaton technology and globalzaton. Ths s crucally mportant, the productvty growth beng a key requrement to soco-economc development. The qualty and relevance of such educatonal expanson to the economy and socety n the lowncome economes should also be taken nto consderaton. 10

12 Ths study ndcates what lessons Bangladesh can learn to mprove ts strategy for economc growth and development. The lessons learnt would help the government to draw polcy recommendatons on measures of how to rase the level of human captal accumulaton. Addressng the problem of nvestment n hgher levels of educaton today through the suggested sustanable mechansm, wll allow further accumulaton, resultng n an ncrease n the economy s productvty, and ts ablty to adopt, adapt, or mprove the technology update, and hence ensure sustanable economc growth. References Becker, G. S. (1964). Human Captal: A Theoretcal and Emprcal Analyss. New York, Natonal Bureau of Economc Study. Colclough, C. (1982). The Impact of Prmary Schoolng on Economc Development: A Revew of the Evdence. World Development 10(3): Cypher, M. J. and Detz, J. L. (1997). The Process of Economc Development. Routldge, London and New York. Cohn, E. & Addson, J. (1998). The economc returns to lfelong learnng n OECD countres. Educaton Economcs 6(3): Engelbrecht, H.-J. (2002). Human Captal and Internatonal Knowledge Spllovers n TFP Growth of a Sample of Developng Countres: an Exploraton of Alternatve Approaches. Appled Economcs 34(7): Heckman, J. & Klenow, P. (1997). Human Captal Polcy. mmeo, Chcago, IL, Unversty of Chcago. HEQEP (2010). Hgher Educaton Qualty Enhancement Project, Unversty Grants Commsson of Bangladesh, Project Paper. Gathak, S. (1995). Introducton to Development Economcs, 3 rd ed., Routledge, London and New York. Lau, L. J., Jamson, D. T., and Louat, F. F (1991). Educaton and Productvty n Developng Countres: an Aggregate Producton functon Approach. Workng Paper no 612. Polcy Study and External Affars (Washngton, D.C.: The World Bank). Lucas, R. E. (1988). On the Mechancs of Economc Development. Journal of Monetary Economcs 22(1):3-42. Matsuura, K. (2009). UNESCO World Conference on Hgher Educaton. Conference paper no-2. Mncer, J. (1974). Schoolng, Experence, and Earnngs. New York, Natonal Bureau of 11

13 Economc Study. Mankw, N. G., Romer, D. and Wel, D. N. (1992). A Contrbuton to the Emprcs of Economc Growth. Quarterly Journal of Economcs, OECD (1997). Human Captal Investment: An Internatonal Comparson. Pars, OECD. Papageorgou, C. (2003). Dstngushng Between the Effects of Prmary and Post-prmary Educaton on Economc Growth. Revew of Development Economcs 7(4): Psacharopoulos, G. (1985). Returns to educaton: a further nternatonal update and mplcatons. Journal of Human Resources 20(4): Psacharopoulos, G. (1994). Returns to Investment n Educaton: A Global Update. World Development 22(9): Psacharopoulos, G. & Mattson, R. (1998). Estmatng the returns to educaton: a senstvty analyss of methods and sample sze. Journal of Educatonal Development and Admnstraton 12(3): Psacharopoulos. G and Patrnos. H, (August 2004), Returns to Investment n Educaton: A Further Update. Educaton Economcs 12(2). Perkns, H. D., et al. (2006). Economc of Development. 6 th ed., WW. Norton & Company. Romer, P. M. (1994). The Orgns of Endogenous Growth. Journal of Economc Perspectves 8:3-22. Samoff, J. and Carrol, B. (2003). From Manpower Plannng to the Knowledge Era: World Bank Polces on Hgher Educaton n Afrca. UNESCO Forum Occasonal Paper Seres-2. Schultz, T. W. (1961). Investment n Human Captal. Amercan Economc Revew 51(1):1-17. Smon, A., Brgsten, A. and Manda, D. K. (1998). Have Returns to Educaton Changed over Tme / Evdence from Kenya, Mmeo CSAE, Oxford Unversty. Voon, J. P. (2004). Measurng Socal Returns to Hgher Educaton Investment n Hong Kong. The Economcs of Educaton Revew 20(5): World Bank (1998). Ethopa: Educaton Sector Development Program, Report No ET, Washngton, D.C., World Bank. 12

14 Appendx Mncer (1974) show the basc earnngs functon s nvolves the fttng of a sem-log ordnary least square regresson usng the natural logarthm of earnngs as the dependent varable, and the years of schoolng, potental years of labor market experence and ts square as ndependent varables. Data on these varables can be obtaned from ether household or frm surveys and used to estmate a human captal earnngs functon or wage equaton lke the followng: ln E S EXP EXP (1) where, ln E s the natural logarthm of earnngs of each ndvdual, s constant, S s ndvdual s years of schoolng completed, EXP s work experence, squared.,, and parameters to be estmated, and s an error term. 2 EXP s work experence The above functon can be modfed to nclude regonal dummes, sex, or dfferent levels of educatonal attanment. For the purpose of ths study, dfferent levels of educaton attanment are used. Snce we ntend to calculate the prvate rate of returns to dfferent levels of educaton, the basc earnngs equaton becomes: ln E PRIM SEC UNIV EXP EXP (2) where, PRIM, SEC, UNIV stand for prmary, secondary and unversty levels of educaton, respectvely, and EXP s work experence. From the above earnngs functon, one can calculate the rate of return of nvestment n educaton after acqurng an addtonal year of schoolng. Ths s gven as: de 1 ln (3) ds Ths s the estmate of the average percent addtonal earnngs resultng from an extra year of schoolng. It s an estmate of how wages n an economy vary by educaton for the year n whch the data are obtaned. The term β 1 s also nterpreted as the average annual prvate rate of return to one addtonal year of schoolng, regardless of the level of schoolng already attaned. Estmates of β 1 vary wdely. The way to compute the returns to an extra level of educaton s takng the antlog and usng the formula: Returns 4 EXP ln E ln E 1 (4) Ths rate can be dvded by the numbers of years at each level to get annual returns. The estmates from equaton 2 provde consstent estmates; but there may be correlatons between educaton and unobservable varables such as famly characterstcs and background. Ths s taken care of by adjustng the model to account for the observables or that may not necessarly have a sgnfcant effect