Free AIOU Solved Assignment Code 4660 Spring 2021
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Course: Economic Development of Pakistan–II (4660)
Semester: Spring, 2021
Assignment No. 1
Q.1 Describe different forms of savings and their impact on national economy.
In the years following the Monterrey Conference, developing countries have made significant progress in the implementation of development policies in key areas of their economic frameworks, contributing to increased mobilization of domestic resources and higher levels of economic growth in some cases.
The Doha Declaration of December 2008 affirmed that “national ownership and leadership of development strategies and good governance are important for effective mobilization of domestic financial resources and fostering sustained economic growth and sustainable development.”
The Doha Declaration recommended that “the scope for appropriate counter-cyclical policies to preserve economic and financial stability has to be expanded” so that macroeconomic policies “aimed at sustaining high rates of economic growth, full employment, poverty eradication, and low and stable inflation” can be achieved.
In order to improve domestic resource mobilization, the Declaration requested “the Economic and Social Council to examine the strengthening of institutional arrangements, including the United Nations Committee of Experts on International Cooperation in Tax Matters”.
The development of a sound and broad-based financial sector is central to the mobilization of domestic financial resources to ensure that the benefits of growth reach all people by improving access to services in the fields of finance and credit.
The Monterrey Consensus recognized that “private international capital flows, particularly foreign direct investment, along with international financial stability, are vital complements to national and international development efforts.” Foreign direct investment is “especially important for its potential to transfer knowledge and technology, create jobs, boost overall productivity, enhance competitiveness and entrepreneurship, and ultimately eradicate poverty through economic growth and development.”
In the Doha Declaration, Member States agreed to “strengthen national and international efforts aimed at maximizing linkages with domestic production activities, enhancing the transfer of technology and creating training opportunities for the local labour force, including women and young people” of foreign investment.
The Declaration reaffirmed “that every State has, and shall freely exercise full permanent sovereignty over, all its wealth, natural resources and economic activity” and supported “measures to enhance corporate transparency and accountability of all companies”.
The Monterrey Consensus recognized “that a substantial increase in Official Development Assistance (ODA) and other resources will be required if developing countries are to achieve the internationally agreed development goals and objectives, including those contained in the Millennium Declaration” and urged “developed countries that have not done so to make concrete efforts towards the target of 0.7 per cent of gross national product (GNP) as ODA to developing countries and 0.15 to 0.20 per cent of GNP of developed countries to least developed countries”. The Doha Declaration reaffirmed these targets and “encouraged donors to work on national timetables, by the end of 2010, to increase aid levels within their respective budget allocation processes towards achieving the established ODA targets.”
The Doha Declaration encouraged “all donors to improve the quality of aid, increase programme-based approaches, use country systems for activities managed by the public sector, reduce transaction costs and improve mutual accountability and transparency” and called upon all donors to untie aid to the maximum extent.
Member States affirmed “the importance of the Development Cooperation Forum of the Economic and Social Council as the focal point within the United Nations system for holistic consideration of issues of international development cooperation, with participation by all relevant stakeholders.”
The Doha Declaration sought efforts both in the United Nations and in collaboration with other relevant institutions, such as the Organization for Economic Cooperation and Development (OECD)/Development Assistance Committee (DAC), “to advance dialogue and cooperation among the increasingly diverse community of development partners.”
In the Doha Declaration, Member States agreed to “intensify efforts to prevent debt crises by enhancing international financial mechanisms for crisis prevention and resolution, in co-operation with the private sector, and by finding solutions that are transparent and agreeable to all.”
It reaffirmed debt resolution principles from the Monterrey Consensus, including “the need to ensure that debt resolution is a joint responsibility of all debtors and creditors, both State and commercial; to recognize that furthering development and restoring debt sustainability are the main objectives of debt resolution; to strengthen transparency and accountability among all parties; to promote responsible borrowing and lending practices; to improve debt management and national ownership of debt management strategies; and to facilitate equivalent treatment of all creditors.”
It called for “keeping the debt sustainability frameworks under review to enhance the effectiveness of monitoring and analysing debt sustainability and consider fundamental changes in debt scenarios, in the face of large exogenous shocks, including those caused by natural catastrophes, severe terms-of-trade shocks or conflict” and “debt indicators based on comprehensive, objective and reliable data.”
The Financing for Development process emphasizes that a universal, rules-based, open, non-discriminatory and equitable multilateral trading system, as well as meaningful trade liberalization, can substantially stimulate development worldwide, benefiting all countries at all stages of development.
The Monterrey Consensus acknowledged “the issues of particular concern to developing countries and countries with economies in transition in international trade, to enhance their capacity to finance their development,” including “the need for special and differential treatment provisions for developing countries in trade agreements”.
The Doha Declaration called for “the implementation of the ministerial declaration of the World Trade Organization adopted at its Sixth Ministerial Conference, held in Hong Kong, China, on the central importance of the development dimension in every aspect of the Doha Development Agenda work programme and its commitment to making the development dimension a meaningful reality.”
Member States agreed “that maximizing the benefits and minimizing the costs of international trade liberalization calls for development-oriented and coherent policies at all levels.”
The Monterrey Consensus put the need of “Addressing systemic issues and ensuring the coherence and consistency of the international economic, financial and trading system in support of development” firmly on the international development agenda. In the Doha Declaration, Members States asserted that more progress is needed on systemic issues, which is “all the more urgent given the current financial crisis”.
In the Doha Declaration, Member States agreed that “the reform of the international financial architecture should focus on providing greater transparency and strengthening the voice and participation of developing countries and countries with economies in transition in international decision-making and norm-setting” and resolved “to undertake appropriate and timely steps to improve the functioning of the international economic and financial system.”
The Spring Note of the Secretary-General to ECOSOC recognized proposals for “effective supra-national mechanisms, as is being attempted, for example, in the European Union, to promote growth- and stability-oriented macroeconomic policies at the national level, including measures to guard off against policies that can lead to unsustainable imbalances at the global level”. This includes, in the long run, serious consideration of the provision of a globally managed liquidity and payments system.
AIOU Solved Assignment Code 4660 Spring 2021
Q.2 How important is foreign aid for the developing countries in relation to their other sources of foreign exchange receipts? Discuss.
International investment or capital flows fall into four principal categories: commercial loans, official flows, foreign direct investment (FDI), and foreign portfolio investment (FPI).
Commercial loans, which primarily take the form of bank loans issued to foreign businesses or governments.
Official flows, which refer generally to the forms of development assistance that developed nations give to developing ones.
Foreign direct investment (FDI) pertains to international investment in which the investor obtains a lasting interest in an enterprise in another country. Most concretely, it may take the form of buying or constructing a factory in a foreign country or adding improvements to such a facility, in the form of property, plants, or equipment.
FDI is calculated to include all kinds of capital contributions, such as the purchases of stocks, as well as the reinvestment of earnings by a wholly owned company incorporated abroad (subsidiary), and the lending of funds to a foreign subsidiary or branch. The reinvestment of earnings and transfer of assets between a parent company and its subsidiary often constitutes a significant part of FDI calculations.
According to the United Nations Conference on Trade and Development (UNCTAD), the global expansion of FDI is currently being driven by over 65,000 transnational corporations with more than 850,000 foreign affiliates.
An investor’s earnings on FDI take the form of profits such as dividends, retained earnings, management fees and royalty payments.
Foreign portfolio investment (FPI), on the otherhand is a category of investment instruments that is more easily traded, may be less permanent, and do not represent a controlling stake in an enterprise. These include investments via equity instruments (stocks) or debt (bonds) of a foreign enterprise which does not necessarily represent a long-term interest.
- dividend payments
- holder owns a part of a company
- possible voting rights
- open-ended holding period
- interest payments
- ownership of bond rights only
- no voting rights
- specific holding period
While FDI tends to be commonly undertaken by multinational corporations, FPI comes from my diverse sources such as a small company’s pension or through mutual funds held by individuals.
The returns that an investor acquires on FPI usually take the form of interest payments or dividends.
Investments in FPI that are made for less than one year are distinguished as short-term portfolio flows. FPI flows tend to be more difficult to calculate definitively, because they comprise so many different instruments, and also because reporting is often poor. Estimates on FPI totals generally vary from levels equaling half of FDI totals, to roughly one-third more than FDI totals.
The difference between FDI and FPI can sometimes be difficult to discern, given that they may overlap, especially in regard to investment in stock. Ordinarily, the threshold for FDI is ownership of “10 percent or more of the ordinary shares or voting power” of a business entity (IMF Balance of Payments Manual, 1993).
|Calculating Investment: Calculations of FDI and FPI are typically measured as either a “flow,” referring to the amount of investment made in one year, or as “stock,” measuring the total accumulated investment at the end of that year.|
Until the 1980s, commercial loans from banks were the largest source of foreign investment in developing countries. However, since that time, the levels of lending through commercial loans have remained relatively constant, while the levels of global FDI and FPI have increased dramatically. Over the period 1991-1998, FDI and FPI comprised 90 percent of the total capital flows to developing countries. Over the period of 1996-2006, FDI and FPI outflows from the United States more than doubled (International Monetary Fund, 2007). Global FDI flows decreased significantly from 2007-2009 due to the Financial Crisis and finally started rising again in 2010, though have still not reached pre-crisis levels.
Similarly, when viewed against the tremendous and growing volume of FDI and FPI, the funds provided in the past by governments through official development assistance, or lending by commercial banks the World Bank or IMF, are diminishing in importance with each passing year. Therefore, when one talks about the recent phenomenon of globalization, one is referring in large part to the effects of FDI and FPI, and these two instruments will therefore be the primary focus of this Issue in Depth.
AIOU Solved Assignment 1 Code 4660 Spring 2021
Q.3 Define capital output Ratio. How it is employed to estimate the amount of investment required to achieve a certain rate of growth in income? Elaborate in detail.
Capital output ratio has very good use in economic planning. Suppose the government targets an economic growth of 9% for next year. planners know that the capital output ratio in India is 4. Here, to realize 9% growth, investment should be increased to 36% (9 x4).
Capital output ratio thus explain the relationship between level of investment and the corresponding economic growth. There is a simple equation in economics that shows the relationship between investment, capital output ratio and economic growth.
G = S/V
Here, G is economic growth, S is saving as a percentage of GDP and V is capital output ratio. Another variant of capital output ratio is Incremental Capital Output Ratio (ICOR). The ICOR indicate additional unit of capital or investment needed to produce an additional unit of output. The utility of ICOR is that with more and more investment, the capital output ratio itself may change and hence the usual capital output ratio will not be useful. Economic development can mean a lot of different things. It can just refer to any growth in the value of an economy as a whole. But more generally, economic development is the continued, active efforts of the public and private sectors of a country that promote the standard of living and economic health of the country. The economic health of a country relates to the economic growth of the country (the dollar value growth I already mentioned) and the general freedom and competitiveness of the market in the country. Generally, as a country becomes more economically developed, the well-being of its citizens improves in a lot of ways: their health, education, security, freedom, and self-sufficiency.
But what factors affect economic development? In today’s lesson, we’re going to go over a few of the most significant factors that affect economic development: population, conflict, and environment. The effect of population growth can be positive or negative depending on the circumstances. A large population has the potential to be great for economic development: after all, the more people you have, the more work is done, and the more work is done, the more value (or, in other words, money) is created. So, surely this can be nothing but good. There’s a reason that farmers often have a lot of kids – more kids means more workers.
But, unfortunately, it isn’t that simple. In a country with abundant resources and money – a rich country – perhaps more people is a good thing. But that isn’t always the case in countries with limited resources. Limited resources and a larger population puts pressures on the resources that do exist. More people means more mouths to feed, more health care and education services to provide, and so forth. So, population can be a mixed bag. Conflict, like population, is complex. It’s generally accepted that a lot of conflict in an area is terrible for economic development. The constant wars in Iraq and the surrounding areas, for example, has had a terrible impact on their economic development. Not only do wars cost money but also private companies like stability – wars aren’t remotely stable, which creates a lot of risk. And when a country comes out of a war badly, a lot of their buildings and infrastructure can be destroyed in the process. The world wars were so expensive for the United Kingdom, for example, that it brought about the ultimate end of the British Empire.
But then there are isolated examples of how wars can boost countries or certain industries. Whenever we develop weapons and war machines, we usually invent a lot of things in the process, and those things not only help us wage war but also help us revolutionize the way ordinary citizens live. The development of the tank was important for war but also for building cars and trucks. And those industries were ignited by the world wars. So, while conflict usually has a negative effect on economic development, this can be a mixed bag, too. A lesser-developed country (LDC), sometimes called a developing country, is a country with a low level of economic development compared to developed countries, such as Japan, Europe and North America, with the exception of Mexico. LDCs are located in Asia, Latin America and Africa. LDCs have some political and social hurdles to overcome in pursuing development. A rapidly growing population is a giant hurdle for many LDCs. Most of the world’s population is actually in LDCs rather than in the developed countries, and people take resources just to survive. The more people there are, the more resources are necessary to provide basic necessities like food, clean water and adequate sanitation. More resources used for survival means there are less resources available for economic development.
Gender inequality also adds to the problem. In many LDCs, the culture frowns upon women working outside of the home. Downplaying or ignoring half of a country’s valuable human resources is typically not a good development plan.
Many LDCs are run by corrupt and inefficient governments. A developed economy requires predictability in the application of law, and trust in the government, given the power it can wield businesses. Corruption prevents this predictability and creates instability and uncertainty, both of which are bad for business. Corruption also creates inefficiency when those in power make decisions based not on sound development strategy but rather on what benefits them or their patrons. For example, important jobs or economic projects may go to political patrons rather than the most qualified people and firms.
Even honest governments in LDCs can have serious problems. In the world of lesser-developed countries, governments often have inadequate resources available to engage in meaningful development or even maintain their current infrastructure. This brings us to our next topic – economic and financial hurdles. LDCs also face several economic and financial hurdles in their race to development. A lack of capital and investment is a serious obstacle for development. Many LDCs simply don’t have the ability to invest in things like factories, machinery, equipment, infrastructure and higher education to support a developed economy.
AIOU Solved Assignment 2 Code 4660 Spring 2021
Q.4 Comprehend in detail the basic education structure at primary, secondary and university level.
According to the Education Act, the aims of basic education are:
- to provide all Portuguese citizens with a common general education that allows them to discover and develop interests, skills, the capacity for reasoning, memory and critical thinking, a moral sense and aesthetic sensitivity, as well as promote individual fulfilment in harmony with the values of social solidarity.
- to provide a balance between knowledge and know-how, between theory and practice, and between school culture and everyday culture.
- to provide physical and motor development, promoting manual activities and artistic education to make pupils aware of the different forms of aesthetic expression, detecting and encouraging skills in these fields.
- to teach a first foreign language and begin a second one.
- to give pupils the basic knowledge that will allow them to pursue studies or join vocational training schemes, helping pupils to acquire and develop methods and tools for individual and group work, promoting the human dimension of work.
- to encourage a national awareness that is open to universal humanism, solidarity and international cooperation.
- to develop knowledge and appreciation of the key values of Portuguese identity, language, history and culture.
- to provide pupils with experiences that encourage civic maturity and social and emotional maturity, creating positive attitudes and habits in their relationships and in cooperation with others, whether within the family or in conscientious, responsible intervention in the situations they find themselves in.
- to help pupils acquire independent attitudes that make them citizens with a sense of their civic responsibilities and who act democratically in community life.
- to provide children with special educational needs with conditions suitable for their development and for making full use of their skills.
- to promote the constant updating of knowledge.
- to participate in the educational information and guidance process alongside families.
- to provide, with freedom of conscience, the acquisition of civic and moral education notions.
- to create the conditions for school and educational success for all pupils.
The principles guiding the organisation and management of the basic education curriculum, as well as learning assessment and curriculum development, are more specifically outlined in Decree-Law no. 55/2018, 6th July, which came into force gradually from academic year 2018/2019 onwards, for the following grades:
(i) 2018/2019 – Grades 1, 5, 7 and 10.
(ii) 2019/2020 – Grades 2, 6, 8 and 11.
(iii) 2020/2021 – Grades 3, 9 and 12.
(iv) 2021/2022 – Grade 4.
Designed to reinforce and consolidate schools’ and teachers’ pedagogical autonomy, thus encouraging them to adopt differentiating measures that facilitate didactic and pedagogical solutions that improve students’ learning conditions, the Ministry of Education advocates some general guidelines to be applied from school year 2018/2019 onwards through its Regulatory Decree no. 10-B/2018, 6th July.
To improve student learning and foster the right conditions for educational success, the government established the following principles by:
- defining rules and procedures facilitating the formation of educational teams to foster collaborative and interdisciplinary work on the joint planning and implementation of teaching activities, as well as teaching and learning assessment.
- creating conditions that allow the educational teams to accompany classes or groups of students throughout each cycle.
- providing specific occasions for teachers to share and reflect upon pedagogical practices and interconnection between the different levels of education.
- preventative intervention that anticipates factors/predictors of school failure and early leaving.
- implementation of measures that guarantee inclusive education that responds to each student’s potential, expectations and needs.
- promoting innovation and diversification of teaching and learning methodologies.
- closely monitoring students that change cycle and school.
- timely identifying students’ integration and learning issues.
- closely monitoring students with integration issues, a bad relationship with peers and teachers, and learning difficulties.
- adjusting teachers’ timetables to the school needs that arise during the school year, whenever justified.
This regulation maintains specific tutorial support, which aims to encourage educational success in 2nd and 3rd cycles for students that have been retained on two or more occasions during their time at school. This support is an additional time credit that allows the form tutor to:
- meet with the students they are monitoring.
- monitor and support the education process of each student of the tutorial group.
- help student’s integration in the class and school.
- support the student’s learning process, creating study habits and work routines.
- give the student appropriate educational guidance at a personal, school, and professional level, according to their skills, needs and interests.
- encourage a learning environment that allows the development of personal and social skills.
- involve the family in the student’s educational process.
- meet with teachers from the class council to analyse the issues and work plans of these students.
The school should organise career guidance activities at specific times during the school year (announced to the school community in a timely fashion), to prevent school failure and early school leaving.
Education and training provision
Basic education in Portugal has a single pathway for all students (general basic education). However, some schools provide artistic education (specialised artistic courses), which is complementary to the general curriculum. There is also specific dual certification for young people at risk of dropping out of school and social exclusion (education and training courses/Cursos de Educação e Formação – CEF).
Education and training provision available:
- a) General Basic Education: general basic education aims to provide students with a general education to continue their studies, in accordance with the principles, values and skills areas found in the Exit Profile of Students Leaving Compulsory Education.
- b) Specialised Artistic Courses: specialised artistic courses focus more on specific training in the areas of dance, music, and Gregorian chant.
- c) Education and training courses (Cursos de Educação e Formação– CEF) geared towards concluding compulsory schooling and access to working life.
Part of the National Strategy for Citizenship Education framework, the citizenship and development component boasts all educational and training provision models. It is the school’s responsibility to formulate its citizenship education strategy, defining the domains, topics and learning to be developed and achieved in each cycle and grade, work methods, the projects to be undertaken by students, the partnerships to be established with the community and student learning assessment.
In general, basic education and specialised artistic courses, the syllabi can also include Portuguese as a foreign language (PLNM) for students whose mother tongue is not Portuguese and/or who have not had Portuguese as a school language and for which, according to their academic path and sociolinguistic profile, the school considers to be the most appropriate curricular provision.
There are also benchmarked schools for bilingual education and teaching. This specialised educational provision offer access to the national curriculum with curricular matrices that include Portuguese sign language as a first language and written Portuguese as a second language.
Basic education includes the following types of education:
- Distance learning.
- Individual tuition.
- Home schooling.
Once other school inclusion measures have been excluded, an Integrated Education and Training Programme (Programa Integrado de Educação e Formação – PIEF) can be adopted, which enables students to conclude compulsory schooling and promotes social inclusion. This is both a temporary and exceptional socio-educational and training measure for inclusion.
Alternative curricular pathways (Percursos Curriculares Alternativos – PCA) Alternative Curricular Pathways (PCA) are also an alternative, as stipulated in Decree-Law no. 55/2018, 6th July. As part of their pedagogical and curricular options, basic education schools can adopt different organisational solutions if none of the existing educational and training provision is suitable for a group of students attending the same school grade. As part of schools’ autonomy and curricular flexibility, Ordinance no. 181/2019, 11th June defines the terms and conditions under which schools can manage over 25% of the basic curriculum of basic education provision.
AIOU Solved Assignment Code 4660 Autumn 2021
Q.5 Explain how the educational system is influenced by economic growth of a society?
Till recently economists have been considering physical capital as the most important factor determining economic growth and have been recommending that rate of physical capital formation in developing countries must be increased to accelerate the process of economic growth and raise the living standards of the people. But in the last three decades economic research has revealed the importance of education as a crucial factor in economic development. Education refers to the development of human skills and knowledge of the people or labour force.
It is not only the quantitative expansion of educational opportunities but also the qualitative improvement of the type of education which is imparted to the labour force that holds the key to economic development. Because of its significant contribution to economic development, education has been called as human capital and expenditure on education of the people as investment in man or human capital.
Speaking of the importance of educational capital or human capital Prof. Harbison writes: “human resources constitute the ultimate basis of production human beings are the active agents who accumulate capital, exploit natural resources, build social, economic and political organisations, and carry forward national development. Clearly, a country which is unable to develop the skills and knowledge of its people and to utilise them effectively in the national economy will be unable to develop anything else.”
Education and Economic Growth:
Several empirical studies made in developed countries, especially the U.S.A. regarding the sources of growth or, in other words, contributions made by various factors such as physical capital, man- hours, (i.e., physical labour), education etc. have shown that education or the development of human capital is a significant source of economic growth.
Professor Solow who was one of the first economists to measure the contribution of human capital to economic growth estimated that for United States between 1909 and 1949, 57.5 per cent of the growth in output per man hour could be attributed to the residual factor which represents the effect of the technological change and of the improvement in the quality of labour mainly as a consequence of education.
He estimated this residual factor determining the increase in the total output on account of the measurable inputs of capital and labour (man-hours). He then subtracted this figure from the total output to get the contribution of residual factor which represented the effect of education and technological change, the physically immeasurable factors.
Denison, another American economist made further refinement in estimating the contribution to economic growth of various factors. Denison tried to separate and measure the contributions of various elements of ‘residual factor’.
According to the estimates of Denison that over the period 1929-82 in the USA during which total national output grew at the rate of 2.9 per cent per annum, increase in labour input accounted for 32 per cent, the remaining 68 per cent was due to the increase in productivity per worker.
He then measured the contributions of education of per worker, capital formation, technological change and economies of scale. Denison found that 28 per cent points of contribution to growth in output due to growth in labour-productivity was due to technological change, 19 per cent points due to capital formation and 14 per cent points due to education per workers, and 9 per cent points due to economies of scale. It is thus clear that education and technological progress together made 42 per cent (14 + 28) contribution to growth in national product .
Rate of Return Approach:
The contribution of education to economic growth has also been measured through the rate of return approach. In this approach rate of return is calculated from expenditure made by individuals on education and the measurement of the flow of an individual’s future earnings expected to result from education.
The present value of these is then calculated by using appropriate discount rate. This method has been used by Gary S. Backer who measured income differential arising from the cost or expenditure incurred on acquiring a college education in the United States. His estimates show that the rates of return on education in the U.S.A. for urban white population were 12.5 per cent in 1940 and 10 per cent in 1950.
Renshaw also adopted this approach. He used Schultz earlier estimates of total earning foregone and expenditure (cost) incurred in acquiring high-school, college and university education in the U.S.A. He estimated that the average return on education ranged between 5 and 10 per cent for the period 1900 to 1950 in the U.S.A.
It is worth noting that estimates of rate of return on investment in education are based upon private rates of returns to individuals receiving education. However, by assuming that differences in earnings in a market economy reflect differences in productivity, the rate of return on investment in education is taken to be the effect of education on the output of the country.
Expenditure on Education and Income:
Another approach to measure the contribution of education is based upon the analysis of the relationship between expenditure on education and income. Using this approach Schultz studied the relationship between expenditure on education and consumer’s income and also the relationship between expenditure on education and physical capital formation for the United States during the period 1900 to 1956. He found that when measured in constant dollars, “the resources allocated to education rose about three and a half times (a) relative to consumer income in dollars, (b) relative to the gross formation of physical capital in dollars”.
This implies that the “income elasticity” of the demand for education was about 3.5 over the period or, in other words, education considered as an investment could be regarded as 3.5 times more attractive than investment in physical capital. It may, however, be noted that these estimates of Schultz only indirectly reflect the contribution of education to economic growth.
In our above analysis we have explained that education is regarded as investment and like investment in physical capital, it raises productivity of the labour and thus contributes to growth of national income. The increased earnings or higher wages made by more educated workers have been considered as benefits not only to the private individuals, but also to the society as a whole. This is because higher earnings presumably reflect higher productivity, increased output in real as well as monetary terms.
Consumption Benefits of Education:
We have explained above the investment benefits of education and therefore its effects on productivity and national output. But investment benefits are not the only benefits flowing from education. Education also yields consumption benefits for the individual as he may “enjoy” more education derive increased satisfaction from his present and future personal life.
If the welfare of society depends on the welfare of its individual members, then the society as a whole also gains in welfare as a result of the increased consumption benefits of individuals from more education. Economic theory also helps us in quantifying the consumption benefits derived from education.
In economic theory, to measure the marginal value of a product or service to a consumer we consider how much he has paid for it. An individual would not have purchased a product or service if it were not worth its price to him. Besides, an individual would have bought more units of a product if he thought that the marginal utility he was getting was more than the price he was paying.
Thus relative prices of various products reflect the marginal values of different products and the amount consumed of various products multiplied by their prices would, therefore, indicate the consumption benefits derived by the individuals.
It may, however, be pointed out that the prices in a free economy are influenced by a given income distribution and the presence of monopolies and imperfections in the market structure and therefore they do not reflect the true marginal social values of different goods.
However, an objective measure of consumption benefits of education may be difficult and has yet to be found out, but it should not lead any one to ignore the consumption benefits of education and its policy relevance. It may also be noted that, according to the new view, economic development is not merely concerned with the growth of output but also with the increase in consumption and well-being of the society. Therefore, consumption benefits of education may also be regarded as developmental benefits.
External Benefits of Education:
We have explained above the investment benefits and consumption benefits flowing from more education both for the individual and for society. The analysis of benefits has been based on the assumption that private interests of individuals are consistent with the social good.
However, private and social benefits do not always coincide for instance social benefits may exceed private benefits. This is the case with the education of an individual which not only benefits individual privately but also others.
First, education makes people better neighbours and citizens and makes social and political life more healthy and meaningful. Secondly, the most important external benefit of more education is its effect on technological change in the economy. More education, especially higher education stimulates research and thereby raises productivity which undoubtedly benefits the society.
The individual inventor may not receive earnings equal to his contribution to the research. Denison’s study of contribution of education to growth whose main findings have been mentioned above clearly shows the external benefits of education.
After estimating the contribution of labour (including educated labour) and physical capital to economic growth he obtained an average residual of 0.59 percentage point. Denison attributed this to the increase in knowledge which is the direct result of research and indirectly of higher education. “If the entire residual indeed stemmed ultimately from education, as some human capital enthusiasts have implied, this would mean that education, directly or indirectly, contributed over 40 per cent of total output growth and 80 per cent of increased productivity from 1929 to 57.” If Denison’s residual is regarded as mainly due to research stimulated by additional education then this is indeed a major external benefit of education.
Education, Inequality and Poverty:
An evaluation of the role of education in economic development must not be confined to judging its impact on growth in output but should also include its impact on structure and pattern of economic development as well as on the distribution of income and removal of poverty.
In the 1950s and 1960s, the most important objective of development was the maximization of rate of economic growth, i.e. growth of material output and in conformity with this the economics of education also focused on estimating the contribution of education to the growth of national output. But now-a- days policy of economic development has been increasingly concerned with the distribution of income i.e., how gains of economic growth are distributed and whether poverty is being reduced.
But recent studies have revealed that education, given the present education system, has tended to increase the inequalities in income distribution rather than reducing them. The adverse effect of formal education on income distribution has been explained through establishing a positive correlation between level of education received by an individual and the level of his life-term earnings.
It has been shown that those who are able to complete their secondary and university education earn as high as 300 to 800 percentages more income in their life time than those who complete a part or whole of their primary education.
“Since levels of earned income are so clearly dependent on years of completed schooling, it follows that large income inequalities will be reinforced and the magnitude of poverty perpetuated if students from middle and upper income brackets are represented disproportionately in secondary and university enrolments. If for financial and/or other reasons the poor are effectively denied access to secondary and higher education opportunities, then the educational system can actually perpetuate and even increase inequality in Third World Nations.”
There are two important economic reasons why in the present education system, children and boys belonging to the poor families cannot complete their education up to the secondary level and in many cases even up to the primary level.
First, the private costs especially, ‘the opportunity costs’ of primary education for the children belonging to the poor families are higher than for students belonging to the rich families. Children of the poor families are needed to do work on their family farms or in other family occupations, that is, cost of studying in school is family work sacrificed. On the other hand, benefits of education to the poor students are also lower as compared to those to the rich students.
This is because it is difficult for the poor students to be selected for the jobs because of poor contacts and influences as compared to rich students, even though they may possess the same level of education.
Even in agriculture where it can be said that more education can benefit all equally because it raises the labour productivity, the more benefits of education and consequently of higher productivity in agriculture are likely to be obtained by those who own land and have adequate resources to modernise their agriculture. The benefits of more education and consequently higher productivity of landless labour may go to the landlords for whom they work.
It follows from above that as a result of higher private costs and lower expected benefits from education of the poor students, the poor family’s rate of return from investment in education of a child is much lower. As a result of this, the children of poor families are likely to ‘drop out’ during the course of primary education.
The fact that children and boys of poor family are unable to complete their secondary education coupled with the fact that there are large income or wage differentials between different persons of different levels of education explain that education in underdeveloped economies tends to increase income inequalities and perpetuates poverty rather than helps to reduce them.