Lecture Economic development - Chapter 8: Human capital: Education and health in economic development

The following will be discussed in this chapter: budget constraint, indifference curve, properties of indifference curve, optimal choices, income effect on consumer choice, price effect on consumer choice, income and substitution effect.

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Development & Human Capital

• Health and education are investments in

human capital to improve labor productivity

• Investment in human capital is a major

determinant of growth and development

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• Investment in health increases the return to investment in education

• Investment in education increases the

return to investment in health

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• Economic growth would not lead to substantial

increases in investment in children’s education

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Determinants of Education Demand

• Wage or income differential paid to workers with various levels of education

• Probability of success in finding a job in the formal sector

• Direct private cost of education (e.g., tuition)

foregone income)

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Return of Investment in Education

• Initial investments in education lead to a

stream of higher future income

• The present discounted value of this stream

of future income is compared to the cost of education

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The Economics of Education

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Age-earnings Profiles by Level of

Education: Venezuela, 1989

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Child Labor in LDCs

• Some 120 million children work full-time

• Some 150 million children work part-time

– 61% or 153 million in Asia

– 32% or 80 million in Africa

– 7% or 17 million in Latin America

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• The problem may be modeled using the

“multiple equilibria” approach

• Government intervention is needed to move

to a ‘better’ equilibrium

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• At W E1 labor supply is AA’

• As children enter the market, wage falls

• At W L adult and child labor supply is TT’

• At W E2 , OA’ of adult and A’T’ children are employed; a ban on child labor moves E 2 to E 1

• The S-shaped curve is supply of child labor between these wages: E 1 BCE 2

A’

T

T’

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The Education Gender Gap

Females receive less education than males in LDCs To close the gap

• The rate of return on education is higher for female than male

• Female education increases productivity and lowers fertility

• Educated mothers raise educated children

inadequate schooling for women

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Male and Female Education

Rates, 2004

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The Education Gender Gap

Consequences of gender bias in health and

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Social vs Private Returns of Education

higher in LDCs than MDCs

• Private returns are higher than social returns

• Social and private returns are higher for

primary than secondary and higher

education

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Rate of Return to Investment in

Education

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Optimal Level of Education

difference between returns and costs

where costs are subsidized and returns are high

• Private: the optimal level of education is “higher”

where costs are heavily subsidized and returns are very high

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Education and Development

• Education Inequality and Poverty

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Lorenz Curves for Education

in India and South Korea, 1990

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Gini Coefficients for Education in

85 Countries, 1990

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Health-Care and Development

Measurement and distribution

• Life expectancy at birth

• Child mortality

• Malnutrition and hunger

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Life Expectancy in World Regions

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Under-5 Mortality Rates in Various

World Regions

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Proportion of Children under 5 Who Are

Underweight, 1990 and 2005

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Deaths of Children under Age 5

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Children’s Likelihood to Die in LDCs

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Regional HIV and AIDS Statistics,

2006

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The Major Neglected Tropical Diseases,

Ranked by Prevalence

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• Health Systems Policy

– Great variability in the performance of health

systems at each income level

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GNI per Capita and Life

Expectancy at Birth, 2002

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