Economia

Education and development. A Review*
That education is a form of investment that can contribute to individual and social development is not a novel idea. Over two centuries ago Adam Smith wrote:
A man educated at the expense of much labor and time... may be compared to one... expensive machine... The work which he learns to perform... over and above the usual wages of common labor willreplace the whole expense of his education (1776, p. 101).
Articles on education as investment appeared sporadically in the first half of this century (for example, Strumilin 1929, Walsh 1935). But it was not until the late 1950s that the subject became a sepárate field of study -the economics of education. The spur was the realization that not all the increases in national output could be accountedfor by the growth of conventional inputs: physical capital, labor, and land. The "residual" puzzle in growth accounting was solved by Schultz (1961a) and others, who introduced human capital into the aggregate production function. One way of analyzing the complex links between education and development is illustrated in figure 1. The direct relationship depicted by arrow 4 -from school to thelabor market- is known as the "external efficiency of education" and has received most attention in the literature, mainly from economists. The triangular path (arrows 1, 3, and 6) from family background to schooling and learning outcomes is known as the "internal efficiency of education" and has been studied mainly by sociologists and psychologists. In recent years, the availability of longitudinaldata sets has permitted some attempts to estímate the full model.
The fírst section in this article presents some of the principal findings on the role of education in development that have been generated in the past twenty years. The following section deals with a series of debates that have appeared in the literature. The final section attempts to draw some policy implications for educationalpriorities in developing countries.
Psacharopoulos, George. 1988. «Education and development. A review». Research Observer 3, (1:99-116), The World Bank, Washington.

Flume; 1

The Evidence
This review is restricted to the effects of education most directly related to a common notion of economic development. One is efficiency in resource utilization, leading to higher income; another is moreequitable distribution of such income.
Labor Market Outcomes
There is widespread evidence that an individual's earnings increase with each extra year of schooling. The explanation of human capital theory is that education makes the individual more productive, not only in the market place but also in the household. As Welch (1970) and Schultz (1975) have put it, education has a beneficialallocative effect or helps the individual to deal with disequilibrium situations.
The empirical core of the human capital school lies in the crossover shown in figure 2 -the trade off between a low level of education and earnings today versus more education and earnings tomorrow. Such a relationship has been documented in practically every country that has data on age-eaming profiles by education. (Seethe appendix for examples from the latest Brazilian census.)

Figure 2

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Proper discounting of the costs and benefits associated with educational investment (the minus and plus areas in figure 2) leads to estimates of its profitability from both the private

and social point of view. Like the rate of return to any other project, the return toeducational investment is the discount rate that sets the net present value of the net stream of benefits equal to zero. In a state subsidized system the cost of education to the individual is the earnings forgone while in school. From a social viewpoint, however, the cost of education must include all resources used to provide education (for example, teachers' salaries and the use of classrooms)....