The Central American sub-region is of interest not only because of its high levels of income inequality, but also because of its heterogeneity and the fact that several countries have only recently emerged from civil war. The sub-region comprises two upper middle income countries (Costa Rica and Panama), two lower middle income countries (El Salvador and Guatemala) and two low income countries (Honduras and Nicaragua). Further, Guatemala and Honduras have a sizeable proportion of indigenous population, while Honduras and Nicaragua also have people of Afro-Caribbean origin. Both these groups have traditionally had limited access to tertiary education. Since the early 1990s, the focus in almost all countries (with the possible exception of Panama), especially those affected by civil war (El Salvador, Guatemala and Nicaragua) has been on promoting basic education, often using innovative models to expand coverage. The situation regarding tertiary education is different: on the one hand, there have been few policy changes with respect to public tertiary education while, on the other, the private sector has expanded rapidly. There has been no systematic analysis of the progress made in tertiary education, particularly for lower income and indigenous groups.

Our study relies heavily on household surveys but also draws on analysis of public spending data and qualitative studies of the participation of indigenous people in tertiary education in Nicaragua and Guatemala.<sup>6</sup> We begin by examining the growth in average education attainment and different measures of education inequality, as well as inter-generational and intragenerational inequality. Next, we present the progress of tertiary education attainment over time, enrollment and completion rates by income quintiles and the participation of indigenous people. This is followed by an examination of labor market outcomes for tertiary education graduates. The following section analyses the key obstacles to reaching tertiary education for students from different backgrounds across the education cycle. Finally, we evaluate the level and role of public funding for tertiary education, including the incidence of public spending on tertiary education and assess the public policy options for addressing these obstacles.

# **2. RELATED LITERATURE**

Research on education inequality has been relatively scarce and, to our knowledge, there has been no analysis done for the Central American countries. Thomas, Wang and Fan (2001), employing techniques from the income inequality literature, pioneered the analysis of inequality in education attainment across the world using the Gini coefficient and demonstrated that inequality (measured in this manner) had fallen in most countries, as average education attainment increased between 1960 and 1990. Their study did not examine inequality at different levels of education. As countries attain higher levels of coverage in primary and secondary education, inequality in tertiary education becomes increasingly more relevant.

Going beyond the documentation of inequality patterns, several studies have focused on the determinants of inequality in education attainment. Inequality in education attainment has been correlated with lack of resources and the existence of market failures in the market for education financing, justifying public intervention, in most cases through the provision of free

> 6 These analyses were also undertaken as part of the World Bank’s study on equity in tertiary education.

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