metadata: authors: 0: author: Psacharopoulos, George
1: author: Patrinos, Harry Anthony
docna: 0: docna: Returns to investment in education : a
            further update
docty: Policy Research Working Paper
subtopic: Curriculum & Instruction,Teaching and Learning,Public Health Promotion,Decentralization,Economic Theory & Research,Agricultural Knowledge and Information Systems,Health Monitoring & Evaluation,Economics of Education
teratopic: Agriculture,Public Sector Development,Health, Nutrition and Population,Macroeconomics and Economic Growth,Education
abstracts: cdata!: Returns to investment in education based
            on human capital theory have been estimated since the late
            1950s. In the 40-plus year history of estimates of returns
            to investment in education, there have been several reviews
            of the empirical results in attempts to establish patterns.
            Many more estimates from a wide variety of countries,
            including over time evidence, and estimates based on new
            econometric techniques, reaffirm the importance of human
            capital theory. The suthors review and present the latest
            estimates and patterns as found in the literature at the
            turn of the century. However, because the availability of
            rate of return estimates has grown exponentially, the
            authors include a new section on the need for selectivity in
            comparing returns to investment in education and
            establishing related patterns.
repnme: repnme: Returns to investment in education : a
            further update
display_title: Returns to investment in education :
            a further update
listing_relative_url: /research/2002/09/2004282/returns-investment-education-further-update
publishtoextweb_dt: 2010-07-01T00:00:00Z
historic_topic: Agriculture,Public Sector Development,Health, Nutrition and Population,Macroeconomics and Economic Growth,Education
no_of_pages: 36
model_extractions: I POLICY RESEARCH WORKING PAPER 2881

# Abstract

Returns to investment in education based on human capital theory have been estimated since the late 1950s. In the 40-plus year history of estimates of returns to investment in education, there have been several reviews of the empirical results in attempts to establish patterns. Many more estimates from a wide variety of countries, including over time evidence, and estimates based on new econometric techniques, reaffirm the importance of human capital theory. Psacharopoulos and Patrinos review and present the latest estimates and patterns as found in the literature at the turn of the century. However, because the availability of rate of return estimates has grown exponentially, the authors include a new section on the need for selectivity in comparing returns to investment in education and establishing related patterns.

This paper-a product of the Education Sector Unit, Latin America and the Caribbean Region-is part of a larger effort in the region to document the benefits of investments in education. Copies of the paper are available free from the World Bank, 1818 H Street NW, Washington, DC 20433. Please contact Nelly Vergara, room 17-004, telephone 202-473-0432, fax 202-522-3135, email address nvergara@worldbank.org. Policy Research Working Papers are also posted on the Web at http://econ.worldbank.org. Harry Patrinos may be contacted at hpatrinos@worldbank.org. September 2002. (28 pages) _The Policy Research Working Paper Senes disseminates the findings of work in progress to encourage the exchange of ideas about development issues. An objective of the series is to get the findings out quickly, even if the presentations are less than fully polished. The papers carry the names of the authors and should be cited accordingly. The findings, interpretations, and conclusions expressed in this paper are entirely those of the authors. They do not necessarily represent the view of the World Bank, its Executive Directors, or the countries they represent._ Produced by the Research Advisory Staff
Returns to Investment in Education: A Further Update George Psacharopoulos and Harry Anthony Patrinos* JEL codes: C13, J31 Psacharopoulos: University of Athens, Greece; Patrinos: World Bank. The views expressed in this paper are the authors' and should not be attributed to the World Bank Group. Comments received from Barry Chiswick and Walter McMahon are greatly appreciated. The excellent contributions of Kyriakos Georgiades are greatly appreciated. We also acknowledge the research assistance of Leila Mamedova and Anahit Poghosyan. Address all correspondence to Harry Patrinos, The World Bank, 1818 H Street NW, Washington, DC 20433, USA; email: hpatrinos(iworldbank.org.
# I. **Introduction**

Returns to investment in education, in the modern/human capital sense of the term, have been estimated since the late 1950s. In the 40-plus year history of estimates of returns to investment in education, there have been several reviews of the empirical results in attempts to establish patterns (see Psacharopoulos 1973, 1985, 1994).

The rise in earnings inequality experienced during the 1980s and 1990s in many countries led to renewed interest in estimates of returns to schooling (see, for example, Murphy and Welch 1992). A very large literature suggests that systematic changes in the production process led to changes in the demand for certain types of labor. It was argued much earlier in the literature that education is more productive the more volatile the state of technology (Nelson and Phelps 1966; Welch 1970; Griliches 1969; Schultz 1975).

A more selective rates of return estimate review focusing on the causality debate between schooling and earnings (Card 2001) reaffirms Griliches' (1970) conclusion that the effect of ability and related factors does not exceed 10 percent of the estimated schooling coefficient. Instrumental variable (IV) estimates of the returns to education based on family background are higher than classic OLS estimates (based on Mincer-Becker-Chiswick). The estimation method makes little difference on the returns to education.

In this paper, we begin by following the tradition and present latest estimates and patterns. However, because the availability of rate of return estimates has grown exponentially, we include a new section on the need for selectivity in comparing retums to investment in education and establishing related patterns.

# II. **The Latest Patterns**

The classic pattern of falling returns to education by level of economic development and level of education are maintained (see Tables 1 and 2 and Figures 1 to 4). Also, in the updated data set the private returns to higher education are increasing. These new results are based on 6 new observations and updated estimates for 23 countries since the last review (Psacharopoulos 1994). Estimates of the raw returns to education for 98 countries are presented in Annex Tables Al to A4. These estimates cut along policy issues in the literature. An effort has been made to select rates of return as comparable as possible (but see section III below).

Private returns are higher than "social" returns where the latter is defined on the basis of private benefits but total (private plus external) costs (Figure 1). This is because of the public subsidization of education and the fact that typical social rate of return estimates are not able to include social benefits. Nevertheless, the degree of public subsidization increases with the level of education, which has regressive income distribution implications.

Overall, the average rate of return to another year of schooling is 10 percent. Returns to education by level of country income are presented in Table 3 (and Figure 5). The highest
returns are recorded for low and middle-income countries. This update includes new country estimates and updated estimates for 42 countries.

Average returns to schooling are highest in the Latin America and the Caribbean region and for the Sub-Saharan Africa region (Table 4). Returns to schooling for Asia are at about the world average. The returns are lower in the high-income countries of the OECD. Interestingly, average returns to schooling are lowest for the non-OECD European, Middle East and North African group of countries.

During the last 12 years, average returns to schooling have declined by 0.6 percentage points (see Annex Table A4). At the same time, average schooling levels have increased. Therefore, and according to theory, everything else being the same, an increase in the supply of education has led to a slight decrease in the returns to schooling.

Overall, women receive higher returns to their schooling investments (Table 5 and Figure 6). But the returns to primary education are much higher for men (20 percent) than for women (13 percent). Women, however, experience higher returns to secondary education (18 versus 14 percent).

# **III. A More Selective Approach**

Returns to education compilations, as presented above, have been attacked in the literature (see Bennell 1996), although not for the right reasons (see Psacharopoulos 1996). The real reason one should be skeptical about indiscriminate rate of return compilations, and in spite of the efforts of the compilers, is that in the original works the estimates are rarely fully comparable. There are two main sources of non-comparability: data sample coverage and methodology.

Ideally, a rate of return to investment in education should be based on a representative sample of the country's population. But in reality this is the exception rather than the rule. This is problematic when the estimated rates of return are based on a survey of firms - rather than households - because firm-based samples are highly selective. In order to control survey costs, such samples focus on large firms with many employees. Second, the questionnaire is typically filled by the payroll department rather than by the individual employee. Typically, this approach leads to the use of samples concentrated only in urban areas.

Another problem occurs when rate of return estimates are based on samples that include civil servants. This is a problem because public sector wages typically do not reflect market wages. Of course, in many countries - although fewer now than in the past - the majority of university graduates end up in public sector employment. The concentration of graduates in public sector employment is identified as a problem in growth studies (see, for example, Pissarides 2000). However, civil service pay based rate of return estimates are useful in private calculations regarding the incentives set by the state to invest in education - and opt for employment in the public sector.

2
Turning to methodology, a less serious problem occurs when wage effects are confused for returns to education. Mincer (1974) has provided a great service and convenience in estimating returns to education by means of the semi-log earnings function - first done in Becker and Chiswick (1967). However, for the sake of that convenience, many researchers use the raw coefficients of education in the extended (dummy-form) function to report returns to education, whereas these are wage effects.

Another methodological limitation, despite Becker's (1964) warning, is that many researchers feel obliged to throw in the regression whatever independent variables they seem to have in the data set, including occupation. In effect, this procedure leads to stealing part of the effect of education on earnings that comes from occupational mobility.

Perhaps the returns to education estimates that stem from the work of Ashenfelter and others using twins (Ashenfelter and Krueger 1994; Ashenfelter and Rouse 1998; Miller, Mulvey and Martin 1995; Rouse 1999; Behrman and Rosenzweig 1999) and other natural experiments are the most reliable of all. According to this work, the overall private rate of return to investment in education in the United States is of the order of 10 percent. This figure establishes a benchmark for what the social rate of return would be (a couple of percentage points lower, if not adjusted for externalities), or what the rate of return should be in a country with a lower per capita income than that of the United States (several percentage points higher, as based on the extrapolation of the non-so-comparable returns to education presented earlier).

Incidentally, estimates of the returns to education based on analysis of twins' eamings - as well as estimates using IV measures (see, for example, Card 2001) - come to an average rate of return that is very similar to the global average presented in this compilation: 1 0 percent.

# **IV. Extensions**

There is a concern in the literature with what might be called "social" rates of return that include true social benefits, or externalities. Efforts to make such estimates are numerous, but the estimates vary widely. The earnings of educated individuals do not reflect the external benefits that affect society as a whole but are not captured by the individual. Such benefits are known as externalities or spillover benefits, since they spill over to other members of the community. They are often hard to identify and even harder to measure. In the case of education, some have succeeded in identifying positive externalities but few have been able to quantify them (but see Weisbrod 1964; Haveman and Wolfe 1984). If one could include externalities, then social rates of return may well be higher than private rates of return to education. A recent review finds that empirical evidence is scarce and inconclusive, providing some support for human capital externalities, but not very strong (Venniker 2001). These studies estimate extemalities in the form of individual's human capital enhancing the productivity of other factors of production through channels that are not internalized by the individual (similar to Lucas' (1988) theory). As Venniker (2001) states, evidence is not unambiguous. In fact, some estimates give negative values, while others give very high estimates.

3
The evidence comes from a few studies. The cross-country regressions take the log of GDP per capita explained by average schooling and additional control variables. The micro studies refer to individual log wage explained by individual years of schooling, average years of schooling in a relevant geographical area, and additional control variables. The social returns equal the sum of the two schooling coefficients. Heckman and Klenow (1997) estimate the externality by comparing the schooling coefficient from cross-country regressions with those from cross-individual regressions. When they take into account-differences in technology, social returns become similar to private returns. Rauch (1993) looks at the effect of average education on workers' wages and finds significant externalities. However, average and own education may *be highly correlated. Acemoglu and Angrist (2000) correct for this by using instrumental variables. A few studies in Africa have focused on estimating external benefits of education in agriculture using the education of neighboring farmers. A one year rise in the average primary schooling of neighboring farmers is associated with a 4.3 percent rise in output compared to a 2.8 percent effect of own farmer primary education in Uganda (Appleton and Balihuta 1996, reported in Appleton 2000). Another study finds 56 percent and 2 percent figures for Ethiopia, but seems rather too high (Weir 1999, reported in Appleton 2000). The results overall are inconclusive.

# **V. Policy Issues**

Not only has the academic literature on returns to schooling increased, as is evidenced here, both in quantity and quality, but the policy implications have changed, too. No longer are returns to education seen as prescriptive, but rather as indicators, suggesting areas of concentration. A good example is the impact of technology on wage differentials, which led to a huge literature on changing wage structures (see, for example, Krueger 1993; Patrinos 2001).

At the same time, the importance of returns to education is seen in their adoption as a key indicator by the OECD (2001a) in their annual _Education at a Glance_ series and other policy documents (OECD 2001b; OECD 1997). Increasingly, governments and other agencies are funding studies of returns to education along with other research, to guide macro policy decisions about the organization and financing of education reforms. This was the case in the United Kingdom's higher education reforms as well as the Australian higher education financing reforms.

Innovative use of rate of return studies is being used to both set overall policy guidelines and to evaluate specific programns. Examples include the Indonesia school building program (Duflo 2001), India's blackboard project (Chin 2001) and Ethiopia's major sector investment program (World Bank 1998).

Above all, returns to schooling are a useful indicator of the productivity of education and incentive for individuals to invest in their own human capital. Public policy needs to heed this evidence in the design of policies and crafting of incentives that both promote investment and ensure that low-income families make those investments.

4
# VI. **Conclusion**

By way of summary, and based on the fix provided by the newer quasi-experimental research on the economics of education, investment in education behaves in a more or less similar manner as investment in physical capital. In advanced industrial countries, the returns to human and physical capital tend to be equated at the margin.

At the same time, we should point to a major research gap, which is the marriage between the micro and the macro evidence on the returns to education. Whereas at the micro case, as amply demonstrated above, it is established beyond any reasonable doubt that there are tangible and measurable returns to investment in education, such evidence is not as consistent and forthcoming in the macro literature (see, for example, Pritchett 2001; and Psacharopoulos 2000 and Krueger and Lindahl 1998 for a different perspective).

More research on the social benefits of schooling is needed. For developing countries, there is a need for more evidence on the impact of education on earnings using quasiexperimental design. There are more opportunities today for this type of research. Moreover, this research needs to be used to create programs that promote more investment and reform financing mechanisms.

# **References**

- Acemoglu, D. and J. Angrist. 2000. "How Large Are Human Capital Extemalities? Evidence from Compulsory Schooling Laws." MIT (mimeo).

- Appleton, S. 2000. "Education and Health at the Household Level in Sub-Saharan Africa." Harvard University Center for International Development Working Paper No. 33.

- Appleton, S and Balihuta, A. 1996. "Education and Agricultural Productivity: Evidence from Uganda." Centre for the Study of African Economies Working Paper No. WPS/96-5.

- Arai, M. and C. Kjellstrom. 1999. "Returns to Human Capital in Sweden," in R. Asplund, and P.T. Pereira, eds., _Returns to Human Capital in Europe._ Helsinki: ETLA, The Research Institute of the Finnish Economy.

- Ashenfelter, 0. and A.B. Krueger. 1994. "Estimates of the Economic Return to Schooling from a New Sample of Twins." _American Economic Review_ 84(5): 1157-1173.

- Ashenfelter, 0. and C.E. Rouse. 1998. "Income, Schooling, and Ability: Evidence from a New Sample of Twins." _Quarterly Journal of Economics_ 113: 253-284.

- Asplund, R. 1999. "Earnings and Human Capital: Evidence for Finland," in R. Asplund, and P.T. Pereira, eds., _Returns to Human Capital in Europe._ Helsinki: ETLA, The Research Institute of the Finnish Economy.

_5_
- Barth, E. and Roed, M. 1999. "The Return to Human Capital in Norway," in R. Asplund, and P.T. Pereira, eds., _Returns to Human Capital in Europe._ Helsinki: ETLA, The Research Institute of the Finnish Economy.

- Becker, G.S. 1964. _Human Capital: A Theoretical and Empirical Analysis._ New York: National Bureau of Economic Research.

- Becker, G.S. and B.R. Chiswick. 1966. "Education and the Distribution of Earnings." _American Economic Review 56:_ 358-369.

- Bedi, A. 1997. "The Importance of School Quality as Determinant of Earnings in a Developing Country: Evidence from Honduras." _International Journal of Educational Development_ 17(4): 427-437.

- Behrman, J.R. and M.R. Rosenzweig. 1999. "'Ability' Bias in Schooling Retums and Twins: A Test and New Estimates." _Economics of Education Review_ 18(2): 159-167.

- Belli, P. and M.A. Ayadi. 1998. "Returns to Investment in Education: The Case of Nicaragua." World Bank (mimeo).

- Bennell, P. 1996. "Rates of Return to Education: Does the Conventional Pattem Prevail in subSaharan Africa?" _World Development_ 24(1): 183-199.

- Bevc, M. 1993. "Rates of Return to Investment in Education in Former Yugoslavia in the 1970s and 1980s by Region." _Economics of Education Review_ 12(4): 325-43.

- Brunello, G., S. Comi, and C. Lucifora. 1999. "Returns to Education in Italy: A Review of the Applied Literature." in R. Asplund, and P.T. Pereira, eds., _Returns to Human Capital in Europe._ Helsinki: ETLA, The Research Institute of the Finnish Economy.

- Card, D. 2001. "Estimating the Return to Schooling: Progress on Some Persistent Econometric Problems." _Econometrica_ 69(5): 1127-1160.

- Chin, A. 2001. "The Returns to School Quality When School Quality is Very Low: Evidence from Operation Blackboard in India." (mimeo).

- Christensen, J.J. and N. Westergard-Nielsen. 1999. "Wages and Human Capital: The Danish Evidence," in R. Asplund, and P.T. Pereira, eds., _Returns to Human Capital in Europe,_ Helsinki: ETLA, The Research Institute of the Finnish Economy.

- Cohen, B. and W.J. House. 1994. "Education, Experience and Earnings in the Labor Market of a Developing Economy: The Case of Urban Khartoum." _World Development_ 22(10): 1549-1565.

6
- Cohn, E. 1997. "The Rate of Return to Schooling in Canada." _Journal of Education Finance_ *23(2): 193-206.

- Cohn, E. and J.T. Addison. 1998. "The Economic Returns to Lifelong Learning." _Education Economics_ 6(3): 253-308.

- Dabalen, A. 1998. "Returns to Education in Kenya and South Africa: Instrumental Variable Estimates." University of California, Berkeley (mimeo).

- Duflo, E. 2001. "Schooling and Labor Market Consequences of School Construction<sup>in</sup> Indonesia: Evidence from an Unusual Policy Experirnent." _American Economic Review_ 91(4): 795-813.

- Edlnvest. 1999. "The Gambia: An Assessment of the Private Education Sector" (http://www.ifc.org/edinvestO).

- Fersterer, J. and R. Winter-Ebmer. 1999. "Human Capital and Earnings in Austria," in R. Asplund, and P.T. Pereira, eds., _Returns to Human Capital in Europe._ Helsinki: ETLA, The Research Institute of the Finnish Economy.

- Filer, R., S. Jurajda, J. Planovsky. 1999. "Education and wages in the Czech and Slovak Republics during transition." _Labour Economics_ 6: 581-593.

- Fiszbein, A. and G. Psacharopoulos. 1993. "A Cost Benefit Analysis of Educational<sup>Investment</sup> in Venezuela: 1989 Update." _Economics ofEducation Review_ 12(4): 293-98.

- Funkhouser, E. 1996. "The Urban Informal Sector in Central America." _World Development_ 24(11): 1737-51.

- Glewwe, P. 1996. "The relevance of standard estimates of rates of return to schooling for education policy: A critical assessment." _Journal ofDevelopment Economics_ 51: 267290.

- Griffin, P. and A. Cox Edwards. 1993. "Rates of Return to Education in Brazil: Do Labor Market Conditions Matter?" _Economics of Education Review_ 12(3): 245-56.

- Griliches, Z. 1970. "Notes on the Role of Education in Production Functions and Growth Accounting," in W.L. Hansen, ed., _Education, Income and Human Capital._ New York: National Bureau of Economic Research.

- Griliches, Z. 1969. "Capital-Skill Complementarity." _Review of Economics and Statistics_ 51(4): 465-8.

- Harmon, C. and I. Walker. 1995. "Estimates of the Economic Return to Schooling for the United Kingdom." _American Economic Review_ 85(5): 1278-86.

7
Harmon, C. and I. Walker. 1999. "The Marginal and Average Returns to Schooling in the l' _European Economic Review_ 43: 879-887.

- Hartog, J., J. Odink and J. Smits. 1999. "Private Returns to Education in the Netherlands," in R. Asplund, and P.T. Pereira, eds., _Returns to Human Capital in Europe._ Helsinki: ETLA, The Research Institute of the Finnish Economy.

- Haveman, R.H. and B. Wolfe. 1984. "Schooling and Economic Well-Being: The Role of NonMarket Effects." _Journal of Human Resources_ 19(3): 128-140.

Heckman, J. and P. Klenow. 1997. "Human Capital Policy." University of Chicago (mimeo).

- Hossain, S.I. 1997. "Making Education in China Equitable and Efficient." Policy Research Working Paper No. 1814, Washington, DC, World Bank.

- Horowitz, A. and C. Schenzler. 1999. "Returns to General, Technical and Vocational Education in Developing Countries: recent evidence from Suriname." _Education Economics_ 7(1): _5-_ 19.

- Ichino, A. and R. Winter-Ebmer. 1999. "Lower and Upper Bounds of Returns to Schooling: An Exercise in IV estimation with different instruments." _European Economic Review 43:_ 889-901.

- Isacsson, G. 1999. "Estimates of the return to schooling in Sweden from a large sample of twins." _Labour Economics_ 6: 471-489.

- Jones, P. 2001. "Are educated workers really more productive?" _Journal of Development Economics_ 64: 67-79.

- Katsis, A., R. Mattson and G. Psacharopoulos. 1999. "Explaining Educational Development in Pakistan: An Analysis of the 1991 Household Survey." _Journal of Educational Planning and Administration 13(1)._

- Kingdon, G.G. 1998. "Does the Labour Market Explain Lower Female Schooling in India?" _Journal of Development Studies 35(1): 39-65._

- Kling, Jeffrey. 1999. "Interpreting Instrumental Variable Estimates of the Returns of Schooling." Working Paper No. 415, Industrial Relations Section, Princeton University.

- Kroncke, Charles and Kenneth Smith. 1999. "The wage effects of ethnicity in Estonia." _Economics of Transition_ 7(1): 179-199.

- Krueger, A.B. 1993. "How Computers have Changed the Wage Structure: Evidence from Microdata, 1984-89." _Quarterly Journal of Economics_ 108(1): 33-60.

8
Krueget,yA.B. and M. Lindahl. 1998. "Education for Growth: Why and for Whom?" (mimeo).

- Lambropoulos, H. and E. Karadjia. 1999. "The Financing and the Economics of Higher Education in Egypt." (mimeo)

- Lassibille, G. and Navarro Gomez, L. 1998. "The Evolution of Returns to Education in Spain 1980-1991." _Education Economics_ 6(1).

- Liu, Z. 1998. "Earning, Education and Economic Returns to Urban China." _Economic Development and Cultural Change_ 46(4): 697-725.

- Lucas, R.E. 1988. "On the Mechanics of Economic Development." _Journal of Monetary Economics_ 22: 3-22.

- Maani, S.A. 1996. "Private and Social Rates of Return to Secondary and Higher Education in New Zealand: Evidence from the 1991 Census." _Australian Economic Review_ 1:82-100.

- Mason, A. and S. Khandker. 1997. "Household Schooling Decisions in Tanzania." World Bank (mimeo).

- Magoula, T. and G. Psacharopoulos. 1999; "Schooling and monetary rewards in Greece: an Overeducation False Alarm." _Applied Economics_ 31: 1589-1597.

- Maluccio, J. 1998. "Endogeneity of Schooling in the Wage Function: Evidence from the Rural Philippines." FCND Discussion Paper No. 54, Washington, DC.

- Menon, M. 1995. "Factors influencing the demand for higher education in Cyprus." Doctoral Dissertation, University of London.

- Miller, P., C. Mulvey and N. Martin. 1995. "What do Twins Studies Reveal About the Economic Returns to Education? A Comparison of Australian and U.S. Findings." _American Economic Review_ 85(3): 586-99.

- Mincer, J. 1974. _Schooling, Experience, and Earnings._ New York: National Bureau of Economic Research.

- Mokitimi, N.R. and W.L. Nieuwoudt. 1995. "Off-farm wage returns to education: Evidence from Lesotho." _Development Southern Africa_ 12(6): 839-849.

- Moock, P., H. Patrinos and M. Venkataraman. 1998. "Education and Earnings in a Transition Economy (Vietnam)." World Bank Policy Research Paper 1920.

- Mora, J-G. 1999. "Socioeconomic Background, Schooling, and Monetary Rewards in Spain." University of Valencia (mimeo).

9
- Munich, D., K. Terrell and J. Svejnar. 1999. "Returns to Human Capital From the Commnunist Wage Grid to Transition: Retrospective Evidence from Czech Micro Data." (mimeo)

- Murphy, K. and F. Welch. 1992. "The Structure of Wages." _Quarterly Journal of Economics_ 107: 285-326.

- Nelson, R.R. and E.S. Phelps. 1966. "Investment in Humans, Technological Diffusion, and Economic Growth." _American Economic Review_ 65(2): 69-75.

- Nesterova, V.D. and K.Z. Sabirianova. 1998. "Investing in Human Capital Under Economic Transformation in Russia." Economic Education and Research Consortium, Russia Economic Research Program, Working Paper Series No. 99/04.

- Noorkoiv, R., P.F. Orazem, A. Puur and M. Vodopivec. 1998. "Employment and Wage Dynamics in Estonia, 1989-95." _Economics of Transition_ 6 (2) 481-503.

- OECD. 2001 a. _Education at a Glance: OECD Indicators 2001._ Paris: OECD.

- OECD. 2001b. _Education Policy Analysis 2001._ Paris: OECD.

- OECD. 1997. _HumanCapitalInvestment:AnInternationalComparison._ Paris:OECD.

- Parajuli, D. 1999. "External Efficiency and Equity in Nepalese Education." World Bank (mimeo).

- Patrinos, H.A. 2001. "Technology and Labor Market Outcomes: Implications for Education." World Bank (mimeo).

- Patrinos, H.A. 1995. "Education and Earnings Differentials." World Bank (mimeo).

- Patrinos, H.A., E. Velez, and G. Psacharopoulos. 1994. "Language, Education and Earnings in Asuncion, Paraguay." _Journal of Developing Areas_ 29: 57-68.

- Pissarides, C.A. 2000. "Human Capital and Growth: A Synthesis Report." OECD Development Centre, Technical Papers No. 168.

- Pritchett, L. 2001. "Where Has All the Education Gone?" _World Bank Economic Review_ 15(3): 367-393.

- Psacharopoulos, G., E. Velez, A. Panagides and H. Yang. 1996. "The Returns to Education during Boom and Recession: Mexico 1984, 1989 and 1992." _Education Economics_ 4(3): 219-230.

10
- Psacharopoulos, G. and R. Mattson. 1998. "Estimating the Returns to Education: A Sensitivity $ll' alysis of Methods and Sample Size." _Journal of Educational Development and Administration_ 12(3): 271-287.

- Psacharopoulos, G. 1973. _Returns to Education: An International Comparison._ Amsterdam: Elsevier.

- Psacharopoulos, G. 1985. "Returns to Education: A Further International Update and Implications." _Journal of Human Resources_ 20(4): 583-604.

- Psacharopoulos, G. 1994. "Returns to Investment in Education: A Global Update." _World Development 22(9): 1325-43._

Psacharopoulos, G. 1996. "A Reply to Bennell." _World Development_ 24(1): 201.

- Psacharopoulos, G. 2000. "The Economic Costs of Child Labor." In _By the Sweat and Toil of Children._ Washington, DC: Department of Labor.

- Rauch, J. 1993. "Productivity Gains from Geographic Concentration of Human Capital: Evidence from the Cities." _Journal of Urban Economics_ 34: 380-400.

- Rouse, C.E. 1999. "Further Estimates of the Economic Return to Schooling from a New Sample of Twins." _Economics of Education Review_ 18(2): 149-157.

- Rummery, S., F. Vella and M. Verbeek. 1999. "Estimating the returns to education for Australian youth via rank-order instrumental variables." _Labour Economics_ 6: 491-507.

- Rutkowski, J. 1997. "Low Wage Employment in Transitional Economies of Central and Eastern Europe." _Economic Policy and Transitional Economies_ 7(1): 105-130.

- Ryoo, J-K, Y-S Namn, and M. Carnoy. 1993. "Changing Rates of Return to Education over Time: A Korean Case Study." _Economics of Education Review_ 12(1): 71-80.

- Sakellariou, C. 2001. "Rates of Return to Investments in Forrnal and TechnicaWVocational Education in Singapore." _Education Economics_ (forthcoming).

- Schady, N.R. 2000. "What Education Pays? Non-Linear Returns to Schooling Among Filipino Men." World Bank (mimeo).

- Schultz, T.W. 1975. "The Value of the Ability to Deal with Disequilibria." _Journal of Economic Literature_ 13(3): 827-846.

- Schultz, T.P. 1994. "Human Capital Investment in Women and Men." International;Center for Economic Growth Occasional Paper No. 44.
- Tansel, A. 1994. "Wage Employment, Earning and Returns to Schooling for Men and Women in Turkey." _Economics of Education Review_ 13(4): 305-20.

Varga, J. 1995. "Returns to Education in Hungary." _Acta Oeconomica_ 47 (1-2): 201-216.

- Venniker, R. 2001. "Social Returns to Education: A Survey of Recent Literature on Human Capital Externalities." CPB (Netherlands Bureau for Economic Policy Analysis) Report 00/1 (http://www.cpb.nl/eng/cpbreport/2000 1/s3 4.pdf).

- Weber, B. and S. Wolter. 1999. "Wages and Human Capital: Evidence from Switzerland," in R. Asplund, and P.T. Pereira, eds., _Returns to Human Capital in Europe._ Helsinki: ETLA, The Research Institute of the Finnish Economy.

- Wei, X., M.C. Tsang, W. Wu and L.-K. Chen. 1999. "Education and Earning in Rural China." _Education Economics_ 7(2).

- Weir, Sharada. 1999. "The Effects of Education on Farmer Productivity in Rural Ethiopia." Centre for the Study of African Economies Working Paper No. WPS/99-7.

- Weisbrod, B.A. 1964. _External Benefits of Education._ Princeton University, Industrial Relations Section.

Welch, F. 1970. "Education in Production." _Journal of Political Economy_ 78(1): 35-59.

- World Bank. 1996a. _Republic of Ghana: Basic Education Sector Improvement Program_ (Report No. 15570-GH). Washington, D.C.: World Bank.

- World Bank. 1996b. _Bolivia: Poverty, Equity, and Income._ (Report No. 15272-BO). Washington, D.C.: World Bank.

- World Bank. 1998. _Ethiopia: Education Sector Development Program_ (Report No. 17739-ET). Washington, D.C.: World Bank.

**Table 1. Returns to Investment in Education by Level, Full Method, Latest Year, Regional Averages (Percentage)**

|||Social|||Private||
|---|---|---|---|---|---|---|
|Region|Primary|Secondary|Higher|Primary S|econdary|Higher|
|Asia|16.2|11.1|11.0|20.0|15.8|18.2|
|Europe/MiddleEast/NorthAfrica|15.6|9.7|9.9|13.8|13.6|18.8|
|LatinAmerica/Caribbean|17.4|12.9|12.3|26.6|17.0|19.5|
|OECD|8.5|9.4|8.5|13.4|11.3|11.6|
|Sub-SaharanAfrica|25.4|18.4|11.3|37.6|24.6|27.8|

12
World 18.9 10.8 26.6 17.0 19.0 13.1 Source: Table Al.

* Non-OECD.

13
|**Table2.ReturnstoInves**<br>**c**|**tmentinE **<br>**apitaInco**<br>Meanper<br>capita|**ducatio**<br>**meGro**|**nbyLevel,**<br>**up(Percen**<br>Social|**Latest **<br>**tage)**|**Year,A **|**veragesb **<br>Private|**yper**|
|---|---|---|---|---|---|---|---|
|PerCapitaIncomeGroup|(IJS$)|Primary|Secondary|Higher|Primary|Secondary|Higher|
|HighIncome($9,266ormore)|22,530|13.4|10.3|9.5|25.6|12.2|12.4|
|LowIncome($755orless)|363|21.3|15.7|11.2|25.8|19.9|26.0|
|MiddleIncome(to$9,265)|2,996|18.8|12.9|11.3|27.4|18.0|19.3|
|World|7,669|18.9|13.1|10.8|26.6|17.0|19.0|

Source: Table Al.

# **Table 3. The Coefficient on Years of Schooling: Mean Rate of Return (based on Mincer-Becker-Chiswick)**

|PerCapitaIncomeGroup|Meanpercapita<br>(US$)|Yearsof<br>schooling|Coefficient<br>(percent)|
|---|---|---|---|
|HighIncome($9,266ormore)|23,463|9.4|7.4|
|Low Income($755orless)|375|7.6|10.9|
|MiddleIncome(to$9,265)|3,025|8.2|10.7|
|World|9,160|8.3|9.7|

Source: Table A2.

**Table 4. The Coefficient on Years of Schooling: Rate of Return (based on MincerBecker-Chiswick), Regional Averages**

||Meanper<br>capita|Yearsof<br>schooling|Coefficient<br>(percent)|
|---|---|---|---|
|Region|(US$)|||
|Asia|5182|8.4|9.9|
|Europe/Middle East/NorthAfrica|6299|8.8|7.1|
|LatinAmerica/Caribbean|3125|8.2|12.0|
|OECD|24582|9.0|7.5|
|Sub-SaharanAfrica|974|7.3|11.7|
|World|9160|8.3|9.7|
|Source:TableA2.||||
|*Non-OECD.||||

14
**Table 5. Returns to Education by Gender (percentage)**

|EducationalLevel|Men|Women|
|---|---|---|
|Primary|20.1|12.8|
|Secondary|13.9|18.4|
|Higher|11.0|10.8|
|Overall|8.7|9.8|

Source: Table A3.

<!-- Start of picture text --> 35/ E5 Private E Social<br>30 26.6<br>25 18.9 190.<br>204~~~~~1.<br>e 1. Retuns to ivestmen in eduatbn bybvel,bestye 10.8<br>15 1<br>0<br>Primary Secondary Higher<br><!-- End of picture text --> Figure 1. Returns to investmrent in education **by level,** latest year _1 5_
<!-- Start of picture text --> o Asia o Europe/Wddle EasVNorth Africa Latin Arrerica/Caribbean X OECD x Sub-Saharan Africa<br>13 -<br>12 -- ----- ,<br>10 . __ _ _. . i af | _<br>9<br>7 -- . _--_-_-X-__-__ - -_-_-_<br>6-<br>6 7 8 9 10<br><!-- End of picture text -->

Figure 2. Mincerian Retums and mean years of schooling <!-- Start of picture text --> 30- - E Primary O Secondary 0 Higher<br>25-<br>21.3<br>20 8.8<br>15- ~ ~ ~ 1<br>363 2,996 22,530<br>Per Capita Income (0<br><!-- End of picture text --> Figure 3. Social retums to investment in education by income level 16
# Private Rate of Retum **(%/6)**

<!-- Start of picture text --> 40- Primary Secondary O Higher<br>30-/<br>20-L<br>101<br>363 1,698 4,852 22,530<br>Per Capita Income<br><!-- End of picture text --> Fiaure 4. Private returns to investment in education bv income Rate of Return (0/4 <!-- Start of picture text --> 9.8-<br>9.6-<br>9.4-<br>9.2- 8.7<br>9.0<br>8.8 -<br>8.6 -<br>8.4 -<br>8.2 m<br>8.0-<br>Men Women<br><!-- End of picture text --> Figure 6. Mincerian returns to education by gender 17