[Excerpt] This paper is written for educationists and development planners. Its purposes are to familiarize policy makers, advisors, and analysts with the most important approaches to the economics of education and to evaluate the various approaches critically in the context of developing countries. Three topics are developed:
- How social returns to education typically are calculated.
- An evaluation of the conventional social return to education approach.
- A comparison of central planning and local planning.
Before embarking on these topics, an important preliminary issue arises: Why conduct economic analysis of education at all? After all, might it not be crass to think of education in economic terms? Does not investment in education represent an obviously meritorious use of social resources? Is there not overwhelming evidence that countries that spend more on education are richer, at least materially? Wouldn’t educational expansion be especially beneficial to the poorest citizens of a country those who are most likely excluded from education when enrollment ratios are less than universal? How can educators and social scientists with Ph.D.'s even think it possible to have too much education?
The answers to all these questions are the same. Yes, education is a good, but it comes at a cost. To spend more on education is to forego expenditures on health care, housing, construction of infrastructure, or whatever else the resources might have been used for had they not been devoted to education. The concern is not whether more education would produce benefits more on education is the best use of resources, taking account of what must be given up to provide education. In deciding on the desirability of education and in planning educational systems, the benefits of education need to be assessed in relation to the costs. Never is economic analysis more important that when resources are scarcest, as in poor countries.
Recognizing, then, that an economic approach to educational planning is to be desired and not avoided, the appropriate question is how is it to be done? The answers are developed in the remainder of this report. Section I outlines the logic behind economic analysis of educational planning. Section II describes three approaches that have been taken in the literature: the manpower requirements approach, the social demand approach, and the social cost-benefit approach. Section III evaluates the social cost-benefit approach from a central planning perspective. The central planning perspective is contrasted with local planning perspectives in Section IV. Conclusions appear in Section V.