• Rates of return

Rates of return to education

This paper reviews the literature on the rationale for public investments in primary education, especially with respect to international initiatives such as the Millennium Development Goals (MDGs) and the "Education for All" (EFA) goal agreed by the international community in 2000. The author explores the theory of human capital development and related concepts, makes a distinction between private and public rates of return, and surveys the micro-economic and macro-economic evidence in support of a strong focus on primary education.

The paper finds that:

• there is strong evidence that education increases wage earnings by increasing individual productivity
• there is evidence that literacy and numeracy improve the productivity of farmers in developing countries when new agricultural and marketing techniques are being introduced
• the fact that some people are unable to borrow the money they might need to invest in primary education, and so invest less than they would like to, provides a reason for public investment
• at the level of whole countries, it is less clear whether more education leads to faster economic growth.

The paper also notes that social and political arguments, such as those emphasising the links between education, democracy, and human rights, have widespread acceptance at the national level. It highlights the EFA emphasis on universal primary education as a key target; and asks what conditions need to be in place for this goal to be achieved. It also considers possible alternative strategies such as a “balanced educational development” approach, which attempts to find an optimal balance between expanding primary education and investing more in other levels and types of education.

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