**Policy, Rerorh, and Extwnal Aftfir**

**World Development Report**

WPS 612

- This paper a product of the Wclfare and Human Resources Division, Population and Human Resources Department - was prepared **as** a background paper for the _1990 World Developmeni Report_ on poverty. Copies are available free from the Woild Bank, 1818 H Street NW, Washington DC 20433. Please contact the World Development Report office, room SI 3-060, extension 31393 (33 pages, with tables).

The estimated rates of return to education are typically (often considerably) above 10 percent a - year in real terms a respectable rate of retum. The rates of return are highest for primary education, and higher in countries where educated manpower is scarcer. And the durabili of educational capital can be as high as 50 years.

But the effect of education on real output has not been well documented. In particular, few published studies of aggregate production functions establish a statistically significant link between real GDP and the labor force's educational attainment. Lau, Jamison, and Louat found that education has had littile effect on the aggregate real GDPs of a sample of Sub-Saharan African countries.

Now Lau, Jamison, and Louat have pooled data on 58 developing countries, from 1960 through 1986, to estimate an aggregate production function usinig as independent variables the quantities of capital, labor, land, average educational attainment ol' thC labor force, and chronological time.

They measured the percentage change in a region's real GDP in response to an increase of one year in the average educational attainment of the working age population in 1985. The estimated effects range from negative to more than 5 percent a year.

# The results suggest:

> * A positive relationship between the level of primary schooling achieved and the size of its effect.

* A threshold of four years of schooling before primary school has an effect.

c The e'flect of' secondary education seeCIms to be independent of the level of secondary schiooling attained, although local factors may predomiiinate here - wittess the negative eli'ect estimated for South Asia.

They conclude that educatioln is an important determinant of aggregate real output and productivity but that its eff'ect varies considerably across countries and regions.

More research is needed to explain why education varies in its ef'fectiveness, especially where the ef'f'ect appears to be n1egaltivc. TIlcy speculate that certain f'actors mazy inlIuence the e'ffect of primrary and secondary education on aggregate real output - among them, a country's institutions, its organizations lor production and distribution, the compositioni and skill requirements of its industries, the stiucture of education, and the incidence of war anid pestilence.

The PRE Working Paper Scries disseminatcs thc findings of work under **way** in **the** Bank's Policy, Research. an(l Extcmal AffairsComplex. Anobjectiveofthcscries is togetthcscfindingsoutquickly,even if prcsentations arc less thain fullylpolished. The flndings, interpretations, and conclusions in these papers do not necessarily represent official Bank polic .

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