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EC348 Development Economics

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1 EC348 Development Economics
Chapter 8 Lecture - Human Capital: Education and Health in Economic Development

2 If you don’t have money today, your disease will take you to your grave. — An old woman from Ghana
The children keep playing in the sewage. — Sacadura Cabral, Brazil In the hospitals, they don’t provide good care to the indigenous people like they ought to; because of their illiteracy they treat them badly They give us other medicines that are not for the health problem you have. — A young man from La Calera, Ecuador The school was OK, but now it is in shambles; there are no teachers for weeks There is no safety and no hygiene. — Vila Junqueira, Brazil

3 Education and Health as Joint Investments for Development
Health and education are important objectives of development Health and education are also important components of growth and development Why? These are investments in the same individual Greater education capital may improve the returns to investments in health Public health programs need knowledge learned in school Basic hygiene and sanitation may be taught in school Education needed in training of health personnel Greater health capital may improve the returns to investments in education Health is a factor in school attendance Healthier students learn more effectively A longer life raises the rate of return to education Healthier people have lower depreciation of education capital

4 Improving Health and Education: Why Increasing Incomes Is Not Sufficient
Increases in income often do not lead to substantial increases in investment in children’s education and health But better educated mothers tend to have healthier children at any income level Significant market failures in education and health require policy action

5 Education as an Investment
Economics looks at education as an investment that generates higher future earnings More educated people are more productive and earn higher wages Why? Education means more general and technical knowledge, more specialization  division of labor Adam Smith opens the Wealth of Nations (1776) by stating that: “The greatest improvement in the productive powers of labor, and the greater part of the skill, dexterity, and judgment with which it is anywhere directly applied, seem to have been the effects of the division of labor.”

6 Table 8.1 Sample Rates of Return to Investment in Education by Level of Education, Country, Type, and Region The social internal rate of return refers to the costs and benefits to society of investment in education, which includes the opportunity cost of having people not participating in the production of output and the full cost of the provision of education rather than only the cost borne by the individual. Private rate of return is the benefit to an individual from participation in higher education. Usually derived from the additional earnings which a graduate will accrue over a lifetime, with an allowance made for the costs they incur, including earnings foregone during their time in higher education

7 Figure 8.2 Financial Trade-Offs in the Decision to Continue in School

8 Investing in Education and Health: The Human Capital Approach
Initial investments in health or education lead to a stream of higher future income The present discounted value of this stream of future income is compared to the costs of the investment Private returns to education are high, and may be higher than social returns, especially at higher educational levels

9 Education as an Investment
In this perspective, we say that education is a type of “human capital” When individuals spend resources on themselves (or their children), and these expenditures improve their future economic opportunities, we say that they are investing in human capital Examples of different types of human capital: health, formal schooling, technical training, professional training, informal learning Can you think of any other?

10 Back to Education as an Investment
What determines the incentives of individuals to invest in education? A large part of the investments in human capital take the form of time investments, and this will have important consequences What are the costs and benefits? Benefits: higher future earnings, which depend of the amount of investments undertaken and the amount of time over which the return to these investments will be enjoyed

11 Education as an Investment
Costs: Direct costs (out of pocket): expenditures on tuition, books, transportation, other material, etc. Opportunity costs: foregone earnings, alternative investment of resources, etc Foregone earnings: wages and income that could be earned during the time that was “spent” in education Alternative investment of resources: how much income could be earned if resources invested in education was used elsewhere (give examples) So individuals are going to choose the optimal level of investment in education in order to maximize the net return to these investments (benefits – costs) But note that both costs and benefits take place through time, so that we have to compare the present value of these two How does this play out in developing countries?

12 Child Labor Consequences Child labor is a widespread phenomenon
Need to look at why children are used as labor. Wage rate of adult may not suffice. Consequences Obviously deprives kids of education May also expose them to coercion But unfortunately not so simple May be the only way for the family to survive May allow the family to “subsidize” one family member to get an education, and help the whole family the longer-run May keep girls from being married off May provide health care

13 The Economic Pyramid (Sweatshops)
Western consumers – pay up to $200 or more for brand new Nike shoes Sweatshop workers – gets perhaps 30 cent for this pair of shoes Western companies and retailers ‘Middlemen’ – subcontractors

14 Children’s Education Child labor: is related to the direct costs and the opportunity costs of children’s education; depending on the level of income of the family and available credit, it may actually be their best option The question of credit access in this case becomes even more complicated: the optimal investment may not only require borrowing, but it may also ideally require parents to borrow in order to invest in the children, and pass the debt on to them (but that’s usually not allowed) Also fundamental is the fact that investments during these earlier stages determine the productivity of all later educational investments: “if you have a bad background, it’s much more difficult to advance”

15 Children’s Investment
There’s still another point in relation to investments in children’s human capital that must be considered: If parents treat all their kids equally, the cost of providing a certain level of education to all of them will ultimately depend on the number of children: it’s much easier to pay for a good school for one child, than for five children called the quantity-quality trade-off And the effects of an insufficient level of investment at this stage will be carried on throughout life, to lower educational attainment as an adult, lower productivity and wages in the job market, and, ultimately, poverty

16 The Gender Gap: Discrimination in Education and Health
Young females receive less education than young males in nearly every low and lower-middle income developing country Closing the educational gender gap is important because: The social rate of return on women’s education is higher than that of men in developing countries Education for women increases productivity, lowers fertility Educated mothers have a multiplier impact on future generations Education can break the vicious cycle of poverty and inadequate schooling for women Good news: Millennium Development Goals on parity being approached, progress in every developing region

17 The Gender Gap: Discrimination in Education and Health (cont’d)
Consequences of gender bias in health and education Economic incentives and their cultural setting “Missing Women” mystery in Asia Increase in family income does not always lead to better health and education

18 The Gender Gap As mentioned before, young females receive less education than young males in nearly every LDC Closing this educational gender gap is economically desirable Thus, there is a need to look at gender bias in health and education

19 Gender is learned, socially determined behaviour
What is Gender? Gender is the social construction of the biological differences between men and women Gender is not “Sex” Gender is not “Women” Gender is learned, socially determined behaviour Gender is a focus on the unequal relations between men and women

20 Poverty Statistics & Measurement – Looking at Gender
Gender Measures Gender Poverty Ratio = no. of women per 100 men living below poverty line e.g. 130 women per 100 men lived below the poverty line in Bangladesh during the 1990’s (UNFPA, 2002) Gender Development Index (GDI) adjusts HDI to account for inequality in achievement between men and women

21 Human Development Index (HDI) Gender-Related Development Index (GDI)
Gender Empowerment Measure (GEM) Measures average achievement of a country in basic human capabilities. The HDI indicates whether people lead a long and healthy life, are educated and knowledgeable and enjoy a decent standard of living. Measures achievement in the same basic capabilities as the HDI does, but does take note of inequality in achievement between women and men. The GDI is simply the HDI adjusted downwards for gender inequality. Examines whether women and men are able to actively participate in economic and political life and take part in decision-making. GEM is concerned with how others take advantage of the opportunities in life.

22 “Everywhere I have been it is so clear that if you do not deal with the questions of women’s education, of women’s opportunity and women’s rights, you simply cannot have effective development” World Bank President, James Wolfensohn

23 Aspects of Gender Poverty: Education
Skill Development among females is often hindered due to a lack of: Opportunity – access to training programs in farming skills, crop production and general services Technology – access and exposure to new methods is limited due to educational disparity

24 Literacy, particularly the literacy of women, is the most important factor for sustainable and equitable development Hans d’Orville,   Director Bureau of Strategic Planning UNESCO

25 Is Illiteracy a Female Phenomena ?
Cultural and social factors have a major impact on female access to schooling This is compounded by poverty, which is the critical barrier to education, in particular for girls A Look at Some Data

26 Is Illiteracy a Female Phenomena ?
Women’s illiteracy is due to many related factors Girls in many countries are expected to begin helping out at an early age with household responsibilities which prevents them from attending formal schooling Investing in girls and women education is not considered profitable by many poor communities In many patriarchal societies women and girls are denied their fundamental human rights, among them, the right to education In some countries, empowering women through education is not considered essential and sometimes contrary to the role that they are expected to perform

27 Figure 8.4 Youth Literacy Rate, 2008

28 Aspects of Gender Poverty: Health
Poor people are often more sick than the better off with less resistance to disease and less access to food & clean water Poor women have less access to medical and reproductive health services Often this leads to higher birth rates among the poor Increased burden for survival

29 Aspects of Gender Poverty: Discrimination
In the Workplace: Women in many countries work longer hours than men – e.g. in the Indian Himalayas, a bull works 1064 hrs, a man 1212 hrs and a woman 3485 hrs! Women occupy lower positions and get lower wages At least half of women’s total work time is spent on unpaid jobs Invisibility of unpaid work leads to lower social entitlements as compared to men Women have extensive workloads with dual responsibilities – farm & household

30 Aspects of Gender Poverty: Discrimination
Representation: There is great gender inequality in social, economic & political representation Women’s voices are seldom heard in debates on financing and policy development perpetuates gender gap in accessing needed resources such as education, health, physical capital

31 Aspects of Gender Poverty: Discrimination

32 Aspects of Gender Poverty: Discrimination
Power Relationships: In the home… Men typically hold greater “power” given the “breadwinner” title – control of finances Physical power often deprives women the ability to refuse sexual practices In society… Women may not only be discriminated on the basis of gender, but are also further subject to inequality from ethnicity, religion or class. Asset Allocation: Physical – access to land & infrastructure Financial – access to credit & savings Social – access to networks

33 Gender, interacting with other variables defines:

34 Future Steps… Specific measures to narrow gender gaps:
Equal rights to land & property Equal contribution to designing infrastructure & services such as water, transportation, education, health Eliminating gender bias in the workplace Increasing women’s participation in politics

35 Future Steps… Benefits
Improving gender inequality can reduce poverty and reap significant rewards: Falling infant & child mortality Improved nutrition & health standards Increased visibility & lower corruption Faster economic growth

36 Figure 8.5 Female-Male Ratios in Total Population in Selected Communities

37 Educational Systems and Development (Major Issues)
Educational supply and demand: the relationship between employment opportunities and educational demands Social versus private benefits and costs Distribution of education Education, inequality, and poverty Education, internal migration, and the brain drain

38 Figure 8.6 Private versus Social Benefits and Costs of Education: An Illustration

39 Figure 8.8 Gini Coefficients for Education in 85 Countries

40 Health and Development
Health, even more than education, can be considered a consumption good on itself Better health allows each year of life to be enjoyed more  individual welfare is higher when health is better In addition, better health increases the length of life itself, and people like to live longer lives So better health, on itself, increases welfare

41 Health as an Investment
But apart from the direct welfare impacts of changes in health and life expectancy, there are also the indirect effects (causal relation between health and development) As in the case of education, we can also think about health as a form of human capital, in which individuals can invest In reality, health consists of component that individuals cannot control (due to genetics, available technology, etc), and a component that individuals can, at least to some extent, control (via habits, medicines, visits to the doctor, etc)

42 Health as an Investment
Investments in children’s health As in the case of education, children’s health may be of fundamental importance because it may determine the performance later on in life Severe malnutrition during childhood cannot be compensated later on  reduces health throughout life and limits the learning ability  reduces the incentives and the ability of the child to acquire education  tends to reproduce poverty Also, access to credit may be an important issue: parents may want to borrow in order to invest in children’s health, what would increase children’s future earnings, and make it possible for the debt to be paid (with the higher wages)

43 Health and Education as Investments – Some Key Points
Education, health, and income tend to reinforce each other, multiplying the effects of any initial change Quantity (number) of children increases the cost of quality (education/health) of children, and vice-versa  there’s a quantity-quality trade-off in terms of investments in children Investments in children are key: they determine the “base” over which later investments can be “built;” insufficient investments in the earlier stages greatly limit the possibility of later improvements Absence of access to credit may keep individuals “stuck” in a poverty situation, even when they’d be able to overcome it by investing in education and health (and, therefore, becoming more productive)

44 Addressing the Gaps: Health Policy
Policy Levers Intermediate Determinants Immediate Causes Health Public-Private Mix Invest in Provider Capacity Targeting to Low-income... Maternal Nutrition Mother’s Health HIV Prevalence Education Girl’s Education Maternal Education Stipends... Birth spacing Health Services Household income Reduced Infant Mortality Treatment of Disease Governance Expenditure Tracking Anti-corruption Performance Incentives Accountability... Social insurance Seeks treatment Infrastructure Rural development Schools Health clinics Roads Breastfeeding Child Nutrition Immunizations Use of services Disease Prevention Sanitation Household Behavior & Community Norms Water Post-partum care Habitat World Development Report (2004) Birth Attendant

45 Addressing the Gaps: Education Policy
Policy Levers Intermediate Determinants Immediate Causes Health Public-Private Mix Invest in Provider Capacity Targeting to Low-income... Maternal Nutrition Mother’s Health HIV Prevalence Education Girl’s Education Maternal Education Stipends... Birth spacing Health Services Household income Reduced Infant Mortality Treatment of Disease Governance Expenditure Tracking Anti-corruption Performance Incentives Accountability... Social insurance Seeks treatment Infrastructure Rural development Schools Health clinics Roads Breastfeeding Child Nutrition Immunizations Use of services Disease Prevention Sanitation Household Behavior & Community Norms Water Post-partum care Habitat (World Development Report (2004) Birth Attendant

46 Health Systems and Development (Major Issues)
Measurement and distribution Disease burden Malaria and parasitic worms HIV and AIDS Health and Productivity Health systems policy

47 Issues in Health Each factor can be a cause, risk, and/or outcome
Poverty, for example, increases the exposure and impact of HIV/AIDS Diseases such as tuberculosis can reemerges easily due to poverty circumstances HIV/AIDS and tuberculosis increase poverty in the short to medium run by stripping assets Asset rundown leaves individuals, families, and communities more exposed to future health and nutrition shocks

48 Causation, Risks and Effects
Health and Nutrition Causation, Risks and Effects School Achievement Cognitive ability Productivity Work Capacity Poverty Nutrition Health Food Insecurity

49 Figure 8.10 Under-5 Mortality Rates in Various World Regions

50 Figure 8.12A Children’s Likelihood to Die in Selected Countries

51 Figure 8.12B Proportion of Under-Five Children Who Are Underweight, by Household Wealth, around 2008

52 Diseases in Poor Countries
HIV/AIDS Productivity loss: particularly in Africa Malaria Countries with severe outbreaks have 1.3% lower average annual economic growth than other countries Tuberculosis Absent 3-4 months per year from work Forfeiting 20 to 35 percent of annual household income Malnutrition Over half of child mortality in low-income countries can be linked to malnutrition Can you name others?

53 Some Major Neglected Tropical Diseases

54 HIV/AIDS Impact on Agriculture
Labor shortage Affects land use (crops, yields, livestock) Knowledge loss Less intra-household learning Less schooling (drop-out, teacher mortality) Loss of formal and informal institutional capacity Impacts on large-scale commercial agriculture (seasonal, migrant labor)

55 HIV Time Horizon Source, Barnett, 2002

56 Regional HIV and AIDS Statistics, a Decade of Bending the Curve, 2011 versus 2001

57 Lifetime risk of AIDS death for 15-year-old boys,
assuming unchanged or halved risk of becoming infected with HIV, selected countries 100% 90% Botswana 80% Zimbabwe 70% Botswana South Africa Risk of dying of AIDS 60% Zambia Zimbabwe 50% Kenya South Africa risk halved over next 15 years Zambia 40% Côte d’Ivoire current level of risk maintained Cambodia Kenya 30% Côte d’Ivoire Burkina Faso 20% Cambodia Burkina Faso 10% 0% 0% 5% 10% 15% 20% 25% 30% 35% 40% Current adult HIV prevalence rate Source: Zaba B, 2000 (unpublished data)

58 AIDS Effects Within the Household- The Household- Livelihood Labor Economy
Source, Barnett, 2002

59 Malaria - A Dangerous Disease
Causes more than 300 million acute illnesses per year Causes at least 1 million deaths per year 40% of the world’s population is at risk of Malaria Slows economical development of countries Deaths caused by vector-borne diseases in 2000 Schisto-somiasis 50,000 Malaria 1.08M Dengue Fever 12,000 Lymphatic Filariasis 0 Million RBM/WHO 2001

60 Avian Influenza Viral disease Comes from wild birds
Highly infectious type A virus Incubates rapidly Comes from wild birds They don’t show signs of illness They transmit to domestic animals such as chickens or pigs Domestic animals have no natural immunity Potential to transmit to humans through direct contact Humans have no natural immunity

61 Cycles of the Asian H5N1 Virus in Animals and Humans
Waterfowl Domestic birds Mammals (primarily swine) Waterfowl

62 What is Human Trafficking?
Illegal transportation of people for forced labour, sex exploitation, forced marriages… Distinct difference between ‘people smuggling’ and ‘human trafficking’ Over one million people trafficked annually Major profits for both individual traffickers and organised criminal groups (Triads, Mafia, Yakuza) who mislead/deceive victims: fake advertisements, mail-order catalogues etc. Traffickers use blackmail, abuse, and threats to force victims to comply with their wishes in the destination country Very often, cases go unreported Usually caused by poverty/lack of economic opportunities, especially for women and children, and a demand for certain services in the destination country

63 The Who and the What Who is targeted by traffickers?
mainly women and children Why are these people targeted by traffickers? Generally poorer and own less property Less well educated and more prone to the tricks of traffickers What happens to these people? Victims have their passports removed and destroyed Themselves or families threatened Bonded by debt Arranged marriages Slave labor Prostitution What are other issues?

64 Concepts for Review Acquired immunodeficiency syndrome (AIDS)
Basic education Brain drain Derived demand Discount rate Educational gender gap Health system Human capital Human immunodeficiency virus (HIV) Literacy Neglected tropical diseases Private benefits of education Private costs of education Social benefits of education Social costs of education World Health Organization (WHO)

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