Working Paper 37 - The Formation of Human Capital and the Economic Development of Africa: Returns to Health and Schooling Investments

This paper first outlines a framework within which to assess the contribution of health and schooling to increasing individual and aggregate income, as well as the possible feedback of increasing income on the demand for human resources. It then evaluates how African countries have fared from 1970 to 1985 in terms of survival and schooling, compared with other countries, to place in perspective areas of achievement and the aggregate composition of human capital formation in the African region. Several microeconomic studies are then described in more detail that illustrate the magnitudes of private returns to health and schooling in West Africa, some of the consequences of the rationed supply of schooling in South Africa, and evidence of returns to the quality of schooling. The concluding section extracts lessons as to how to conduct country-specific research based on merged household and community surveys to estimate the key parameters describing the private and social returns to marginal investments in health, education, and mobility.

Human Resources in China: The Birth Quota, Returns to Schooling, and Migration

Rural elderly have 40% of the income of those in urban areas, spend a larger share of their income on food, are in worse health, work later into their lives, and depend more on their children, lacking pensions and public services. The birth quota since 1980 has particularly restricted the childbearing of rural less educated women, who now faceretirement with fewer children for support. Inequality in China is also be traced to increasing returns to schooling, especially beyond secondary school. Government restrictions on rural-urban migration reduces national efficiency, adds to the urban-rural wage gap, and increases inequality.Human Capital Returns, Rural-Urban Migration, Elderly Poverty, China

Fertility in Developing Countries

The associations between fertility and outcomes in the family and society have been treated as causal, but this is inaccurate if fertility is a choice coordinated by families with other life-cycle decisions, including labour supply of mothers and children, child human capital, and savings. Estimating how exogenous changes in fertility that are uncorrelated with preferences or constraints affect others depends on our specifying a valid instrumental variable for fertility. Twins have served as such an instrument and confirm that the cross-effects of fertility estimated on the basis of this instrument are smaller in absolute value than their associations.Fertility Determination, Malthus,Household Demands, Fertility Effects

Does the Liberalization of Trade Advance Gender Equality in Schooling and Health?

This paper assesses the empirical relationship between the liberalization of international trade and the economic status of women. Although historically globalization is not generally linked to the advancement of women, several recent country studies find export led growth in middle and low income countries is associated with improvements in women’s employment opportunities. Does intercountry empirical evidence confirm this association across a wider range of countries, and suggest the mechanisms by which it operates? Measures of wages for men and women are an unreliable basis for study of gender inequality in many low-income countries, and thus schooling and health are analyzed here as indicators of productivity and welfare and gender gaps. For a sample of 70 countries observed at five year intervals from 1965 to 1980, tariff, quota, and foreign exchange restrictions are found to be inversely associated with trade, and with the levels of education and health, especially for women. Natural resource exports, although providing foreign exchange for imports, appear to reduce investments in schooling and health, and delay the equalization of these human capital investments between men and women. Liberalization of trade policy is consequently linked in the cross section to increased trade, to greater accumulation of human capital, and to increased gender equality.Trade Liberalization, Schooling, Health, Gender Equality

Demographic Determinants of Savings: Estimating and Interpreting the Aggregate Association in Asia

Life cycle savings is proposed as one explanation for much of the increase in savings and economic growth in Asia. The association between the age composition of a nation's population and its savings rate, observed within 16 Asian countries from 1952 to 1992, is re-estimated here to be less than a quarter the size reported in a seminal study, which assumed lagged savings is exogenous. Specification tests as well as common sense imply, moreover, that lagged savings is likely to be endogenous, and when estimated accordingly there remains no significant dependence of savings on the age composition, measured in several ways. Research should consider lifetime savings as a substitute for children, and model the causes for the decline in fertility which changes the age compositions and could thereby account for savings and growth in Asia.Life Cycle Savings, Aging, Asian Growth, Demographic Transition

School subsidies for the poor

This paper assesses how the Programa Nacional de Educacion, Salud, y Alimentacion (PROGRESA) program has affected the school enrollment of Mexican youth in the first 15 months of its operation. PROGRESA provides poor mothers in poor rural communities with education grants, if their children attend school regularly. Enrollment rates are compared between groups of poor children who reside in communities randomly selected to participate in the initial phase of the PROGRESA program and those who reside in other comparably poor (control) communities. Pre-program comparisons document how well the randomized design is implemented, and double-differenced estimators are reported over time within this panel of children. Probit models are then estimated for the probability that an individual child is enrolled, which statistically controls for additional characteristics of the child, their parents, local schools, and community, and for samples of different compositions, to evaluate the sensitivity of the estimated program effects to these variations. If the current relationship of the program outlays to enrollments, and that of schooling to increased adult earnings, both persist in the future, the internal rate of return to the PROGRESA educational grants as an investment is estimated to be about 8 percent, which accrues in addition to the program's efficacy as a poverty reduction program.Subsidies Mexico. ,Poverty alleviation Mexico. ,Children. ,

The Fertility Transition: Economic Explanations

Economic explanations for the fertility transition focus on the role of returns to schooling, especially for women, which have encouraged women to obtain more education and facilitated the rise in women's wages relative to men's. The private opportunity costs of children have therefore increased, and parents have been motivated to substitute child schooling for additional births Declines in fertility have proceeded unevenly, first across the high income countries, and more recently across the low income countries. The cross sectional differentials in fertility are also frequently analyzed in household surveys, suggesting parallels with the cross-country comparisons. At an aggregate level, states have simultaneously legislated socialized support for the consumption of the elderly, which has eroded the incentives for childbearing, and subsidized child human capital through schools and public health programs, which has encouraged parents to demand fewer, higher quality, children.Fertility Transition, Women's Schooling, Women's Wages, Child Mortality

Labor Unions and the Distribution of Wages and Employment in South Africa

Labor unions are an important economic and political force in South Africa. Inequality in wage rates is among the largest in the world in South Africa, with African and white workers receiving wages that differ by a factor of five. The complex role of unions in closing and creating this wage gap is assessed in this paper. Union membership among Africa male workers is shown to be associated in 1993 with their receiving wages that are 145 percent higher than comparable nonunion workers in the bottom decile of the wage distribution, and 19 percent higher in the top decile of the wage distribution. Quantile regression estimates also indicate the returns to observed productive characteristics of workers, such as education and experience, are larger for nonunion than union workers. If the large union relative wage effect were reduced in half, we estimate employment of African youth, age 16-29, would increase by two percentage points, and their labor force participation rate would also increase substantially.Labor Unions, Wages and Employment, South Africa

Family Planning as an Investment in Development: Evaluation of a Program's Consequences in Matlab, Bangladesh

The paper analyzes 141 villages in Matlab, Bangladesh from 1974 to 1996, in which half the villages received from 1977 to 1996 a door-to-door outreach family planning and maternal-child health program. Village and individual data confirm a decline in fertility of about 15 percent in the program villages compared with the control villages by 1982, as others have noted, which persists until 1996. The consequences of the program on a series of long run family welfare outcomes are then estimated in addition to fertility: women’s health, earnings and household assets, use of preventive health inputs, and finally the inter-generational effects on the health and schooling of the woman’s children. Within two decades many of these indicators of the welfare of women and their children improve significantly in conjunction with the program-induced decline in fertility and child mortality. This suggests social returns to this reproductive health program in rural South Asia have many facets beyond fertility reduction, which do not appear to dissipate over two decades.Fertility, Family Planning, Gender and Development, Program Evaluation, Bangladesh