Schooling and Development

I will illustrate the variety of approaches to development issues that microeconomists have employed by focusing on studies that illuminate and quantify the major mechanisms posited by growth theorists who highlight the role of education in fostering growth. For example, Lucas (1988) emphasizes the role of education by stressing the importance of learning externalities. But what evidence do we have for these? Theories of long-run growth that span the pre- and post-Industrial Revolution focus on the interaction between technical change and schooling. Lucas (2002) and Galor and Weft (2000) explain the shift from a stagnant world in a Malthusian equilibrium to one of sustained growth as the result of technical change inducing investments in schooling which leads to a shift to smaller families. Nelson and Phelps (1966) suggest that a major mechanism by which poor countries develop is through technological transfer, and hypothesize that schooling facilitates such transfers because it improves the ability to master technology. Some key questions suggested by these models are: (ⅰ ) what is the contribution of schooling to productivity in low-income countries? (ⅱ ) does technical change raise schooling returns, and for whom? (ⅲ) does learning play an important role in adopting and adapting to technical change? (ⅳ) how important are learning and thus schooling externalities? and, (ⅴ ) does schooling investment respond to variation in returns, whatever their source, or are there important barriers to human capital investment when returns are high?

I begin with a basic issue: what are the returns to schooling? A standard approach in economics has been to use regressions with wages as the dependent variable and a measure of education as a regressor to estimate the returns from schooling. I will argue that this approach is problematical for identifying the contribution of schooling to productivity in a development context, and is particularly inadequate for exploring the ways in which education might affect conditions for economic growth. I then discuss microeconomic studies that estimate returns from schooling using alternative approaches, looking at inferences based on how education interacts with policy changes, with technology change, and with the marriage market. I then turn to the 4 questions of whether schooling merely imparts knowledge or whether it also facilitates learning particularly in setting undergoing technical change and whether there is social learning that gives rise to educational externalities. I next examine studies that address the question of the responsiveness of educational investments to changes in schooling returns and whether and where there exist important barriers to such investments when returns appear to justify their increase. I end with brief reflection.