Chapter 8 Lecture - Human Capital: Education and Health in

Economic Development

EC348 Development Economics

If you dont have money today, your disease will take you to your
grave. An old woman from Ghana

Chapter 8 Lecture - Human

Capital: Education and
H lth in
Health
i Economic
E
i
Development

The children keep playing in the sewage. Sacadura Cabral,

Brazil
In the hospitals, they dont provide good care to the indigenous
people
p
p like theyy ought
g to;; because off their illiteracyy theyy treat
them badly. . . . They give us other medicines that are not for the
health problem you have. A young man from La Calera,
Ecuador
The school was OK, but now it is in shambles; there are no
teachers for weeks. . . . There is no safety and no hygiene. Vila
Junqueira, Brazil
1

Education and Health as Joint

Investments for Development

Improving Health and Education: Why

Increasing Incomes Is Not Sufficient

Health and education are important objectives of development

Health and education are also important components of growth and
development Why?
These are investments in the same individual
Greater education capital may improve the returns to investments in
h lh
health
Public health programs need knowledge learned in school
Basic hygiene and sanitation may be taught in school
Education needed in training of health personnel
Greater health capital may improve the returns to investments in
education
Health is a factor in school attendance
Healthier students learn more effectively
A longer life raises the rate of return to education
Healthier people have lower depreciation of education capital

Increases in income often do not lead to

substantial increases in investment in
childrens education and health
But better educated mothers tend to have
healthier children at any income level
Significant market failures in education
and health require policy action

Chapter 8 Lecture - Human Capital: Education and Health in

Economic Development

Table 8.1 Sample Rates of Return to Investment in Education by Level

of Education, Country, Type, and Region

Education as an Investment

The social internal rate of return refers to the costs and benefits to society of investment
in education, which includes the opportunity cost of having people not participating in
the production of output and the full cost of the provision of education rather than only
the cost borne by the individual.

Economics looks at education as an investment that

generates higher future earnings
More educated people are more productive and earn
higher wages
Why? Education means more general and technical
knowledge more specialization division of labor
knowledge,

Private rate of return is the benefit to an individual from participation in higher education.
Usually derived from the additional earnings which a graduate will accrue over a lifetime,
with an allowance made for the costs they incur, including earnings foregone during their
time in higher education

Adam Smith opens the Wealth of Nations (1776) by stating

that: The greatest improvement in the productive powers
of labor, and the greater part of the skill, dexterity, and
judgment with which it is anywhere directly applied, seem
to have been the effects of the division of labor.

Figure 8.2 Financial Trade-Offs in the

Decision to Continue in School

Investing in Education and Health: The

Human Capital Approach
Initial investments in health or education
lead to a stream of higher future income
The present discounted value of this stream
of future income is compared to the costs of
the investment
Private returns to education are high, and
may be higher than social returns,
especially at higher educational levels
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Chapter 8 Lecture - Human Capital: Education and Health in

Economic Development

Education as an Investment

Back to Education as an Investment

In this perspective, we say that education is a type of

human capital

What determines the incentives of individuals to

invest in education?

When individuals spend resources on themselves (or

their children), and these expenditures improve their
future economic opportunities
opportunities, we say that they are
investing in human capital

A large part of the investments in human capital take

the form of time investments, and this will have
important consequences

Examples of different types of human capital: health,

formal schooling, technical training, professional
training, informal learning
Can you think of any other?

Benefits: higher future earnings, which depend of the

amount of investments undertaken and the amount of
time over which the return to these investments will
be enjoyed

What are the costs and benefits?

10

Education as an Investment

Child Labor

Costs:
Direct costs (out of pocket): expenditures on tuition, books,
transportation, other material, etc.
Opportunity costs: foregone earnings, alternative investment of
resources, etc

Child labor is a widespread phenomenon

Need to look at why children are used as labor.
Wage rate of adult may not suffice.

Consequences
Foregone earnings: wages and income that could be earned during the time
that was spent in education

Obviously deprives kids of education

May also expose them to coercion
But unfortunately not so simple
May be the only way for the family to survive
May allow the family to subsidize one family member
to get an education, and help the whole family the longerrun
May keep girls from being married off
May provide health care

Alternative investment of resources: how much income could be earned if

resources invested in education was used elsewhere (give examples) So
individuals are going to choose the optimal level of investment in education
in order to maximize the net return to these investments (benefits costs)
But note that both costs and benefits take place through time, so that we
have to compare the present value of these two
How does this play out in developing countries?
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Chapter 8 Lecture - Human Capital: Education and Health in

Economic Development

Childrens Education

The Economic Pyramid (Sweatshops)

Western consumers pay up to $200 or more
for brand new Nike shoes

Child labor: is related to the direct costs and the opportunity

costs of childrens education; depending on the level of
income of the family and available credit, it may actually be
their best option
The question of credit access in this case becomes even more
p
the optimal
p
investment may
y not only
y require
q
complicated:
borrowing, but it may also ideally require parents to borrow
in order to invest in the children, and pass the debt on to
them (but thats usually not allowed)

Western
p
and
companies
retailers

Also fundamental is the fact that investments during these

earlier stages determine the productivity of all later
educational investments: if you have a bad background, its
much more difficult to advance

Middlemen subcontractors

Sweatshop workers gets perhaps 30 cent for this pair of shoes

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Childrens Investment

The Gender Gap: Discrimination in

Education and Health

Theres still another point in relation to investments in

childrens human capital that must be considered:

Young females receive less education than young males in

nearly every low and lower-middle income developing
country
Closing the educational gender gap is important because:
The social rate of return on womens education is higher
than that of men in developing countries
Education for women increases productivity, lowers
fertility
Educated mothers have a multiplier impact on future
generations
Education can break the vicious cycle of poverty and
inadequate schooling for women
Good news: Millennium Development Goals on parity
being approached, progress in every developing region

If parents treat all their kids equally, the cost of

providing a certain level of education to all of them will
ultimately depend on the number of children: its much
easier to p
pay
y for a ggood school for one child, than for
five children
called the quantity-quality trade-off

And the effects of an insufficient level of investment at

this stage will be carried on throughout life, to lower
educational attainment as an adult, lower productivity
and wages in the job market, and, ultimately, poverty

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Chapter 8 Lecture - Human Capital: Education and Health in

Economic Development

The Gender Gap: Discrimination in

Education and Health (contd)

The Gender Gap

As mentioned before, young females receive less
education than young males in nearly every LDC

Consequences of gender bias in health and

education
Economic incentives and their cultural setting
Missing Women mystery in Asia

Closing this educational gender gap is

economically desirable

Increase in family income does not always

lead to better health and education

Thus, there is a need to look at gender bias in

health and education

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What is Gender?

Poverty Statistics & Measurement Looking

at Gender
Gender Measures

Gender is the social construction of the biological differences

between men and women

Gender is not Sex

Gender is not Women

Gender Poverty Ratio = no. of women per 100

men living below poverty line
e.g.
e
g 130 women per 100 men lived below the
poverty line in Bangladesh during the 1990s
(UNFPA, 2002)

Gender is learned, socially determined

behaviour

Gender Development Index (GDI) adjusts HDI

to account for inequality in achievement
between men and women

Gender is a focus on the unequal

relations between men and women
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Chapter 8 Lecture - Human Capital: Education and Health in

Economic Development

Human
Development
Index (HDI)

Gender-Related
Development
Index (GDI)

Gender
Empowerment
Measure (GEM)

Measures
average
achievement of a country
in
basic
human
capabilities.
bili i
The
h HDI
indicates whether people
lead a long and healthy
life, are educated and
knowledgeable
and
enjoy a decent standard
of living.

Measures achievement in
the same basic capabilities
as the HDI does, but does
k note off inequality
i
li in
i
take
achievement
between
women and men. The GDI
is simply the HDI adjusted
downwards for gender
inequality.

Examines whether women

and men are able to actively
participate in economic and
political
li i l life
lif andd take
k part in
i
decision-making. GEM is
concerned with how others
take advantage of the
opportunities in life.

Everywhere I have been it is so clear

that if you do not deal with the
questions of womens education, of
womens opportunity and womens
rights, you simply cannot have
effective development
World Bank President, James Wolfensohn

http://hdr.undp.org/en/media/HDR_2009_EN_Table_J.pdf
http://hdr.undp.org/en/media/HDR_2009_EN_Table_K.pdf
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Literacy,
particularly the
literacy of women,
is the most
important
p
factor
for sustainable and
equitable
development

Aspects of Gender Poverty: Education

Skill Development among females is
often hindered due to a lack of:
Opportunity
pp
y access to training
g programs
p g
in farming skills, crop production and
general services
Technology access and exposure to new
methods is limited due to educational
disparity

www.unescap.org/jecf/p07women.htm

23

Hans dOrville, Director

Bureau of Strategic Planning
UNESCO

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Chapter 8 Lecture - Human Capital: Education and Health in

Economic Development

Is Illiteracy a Female Phenomena ?

Is Illiteracy a Female Phenomena ?

Womens illiteracy is due to

many related factors

Cultural and social factors have a major impact

on female access to schooling

Girls in many countries are expected to begin helping out

at an early age with household responsibilities which
prevents them from attending formal schooling
In esting in girls and women
Investing
omen education
ed cation is not considered
profitable by many poor communities
In many patriarchal societies women and girls are
denied their fundamental human rights, among them, the
right to education
In some countries, empowering women through
education is not considered essential and sometimes
contrary to the role that they are expected to perform

pou ded by poverty,

pove
ty, which
ty,
w c iss thee
Thiss iss co
compounded
poverty
critical barrier to education, in particular for
girls
A Look at Some Data
http://portal.unesco.org/education/en/ev.phpURL_ID=43352&URL_DO=DO_TOPIC&URL_SECTION=201.html

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Aspects of Gender Poverty:

Health

Figure 8.4 Youth Literacy Rate, 2008

Poor people are often more sick than the better

off with less resistance to disease and less access
to food & clean water
Poor women have less access to medical and
reproductive health services
Often this leads to higher birth rates among the
poor
Increased burden for survival

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Chapter 8 Lecture - Human Capital: Education and Health in

Economic Development

Aspects of Gender Poverty:

Discrimination

Aspects of Gender Poverty:

Discrimination

Representation:

In the Workplace:
Women in many countries work longer hours than
men e.g. in the Indian Himalayas, a bull works 1064
hrs, a man 1212 hrs and a woman 3485 hrs!
Women occupy lower positions and get lower wages
At least half of womens total work time is spent on
unpaid jobs

There is great gender inequality in social,

economic & political representation
Womens
are seldom
heard
debates
W
voices
i
ld
h d iin d
b
on financing and policy development
perpetuates gender gap in accessing needed
resources such as education, health, physical capital

Invisibility of unpaid work leads to lower

social entitlements as compared to men
Women have extensive workloads with dual
responsibilities farm & household
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Aspects of Gender Poverty:

Discrimination

Aspects of Gender Poverty:

Discrimination
Power Relationships:
In the home
Men typically hold greater power given the
breadwinner title control of finances
Physical power often deprives women the ability to refuse
sexual p
practices
In society
Women may not only be discriminated on the basis of
gender, but are also further subject to inequality from
ethnicity, religion or class.
Asset Allocation:
Physical access to land & infrastructure
Financial access to credit & savings
Social access to networks

Source: http://www.worldbank.org/gender/prr/engendersummary.pdf
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Chapter 8 Lecture - Human Capital: Education and Health in

Economic Development

Gender, interacting with other variables defines:

Future Steps
ACCESS TO AND CONTROL OVER

Specific measures to narrow gender gaps:

FAMILY
RESOURCES

ECONOMIC
AND SOCIAL
RESOURCES

POLITICAL
O
C
RESOURCES

INFORMATION
O
O
AND
EDUCATION

Equal rights to land & property

Equal contribution to designing
infrastructure & services such as water,
transportation, education, health
Eliminating gender bias in the workplace
Increasing womens participation in politics

TIME

POWER AND DECISION-MAKING

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Figure 8.5 Female-Male Ratios in Total

Population in Selected Communities

Future Steps
Benefits

1.
1
2.
3.
4.

Improving gender inequality can reduce

poverty and reap significant rewards:
F lli iinfant
Falling
f t & child
hild mortality
t lit
Improved nutrition & health standards
Increased visibility & lower corruption
Faster economic growth

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Chapter 8 Lecture - Human Capital: Education and Health in

Economic Development

Figure 8.6 Private versus Social Benefits and Costs of

Education: An Illustration

Educational Systems and Development

(Major Issues)
Educational supply and demand: the
relationship between employment
opportunities and educational demands
Social versus private benefits and costs
Distribution of education
Education, inequality, and poverty
Education, internal migration, and the
brain drain

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Health and Development

Figure 8.8 Gini Coefficients for Education

in 85 Countries

Health, even more than education, can be

considered a consumption good on itself
Better health allows each year of life to be
enjoyed more individual welfare is higher
when health is better
In addition, better health increases the length of
life itself, and people like to live longer lives
So better health, on itself, increases welfare
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Chapter 8 Lecture - Human Capital: Education and Health in

Economic Development

Health as an Investment

Health as an Investment

Investments in childrens health

But apart from the direct welfare impacts of changes in
health and life expectancy, there are also the indirect
effects (causal relation between health and development)

As in the case of education, childrens health may be of

fundamental importance because it may determine the
performance later on in life

As in the case of education, we can also think about health

as a form
f
off h
human capital,
it l in
i which
hi h individuals
i di id l can invest
i
t

Severe malnutrition during childhood cannot be

compensated
t d llater
t on reduces
d
h
health
lth th
throughout
h t lif
life
and limits the learning ability reduces the incentives
and the ability of the child to acquire education tends
to reproduce poverty

In reality, health consists of component that individuals

cannot control (due to genetics, available technology, etc),
and a component that individuals can, at least to some
extent, control (via habits, medicines, visits to the doctor,
etc)

Also, access to credit may be an important issue:

parents may want to borrow in order to invest in
childrens health, what would increase childrens future
earnings, and make it possible for the debt to be paid
(with the higher wages)
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42

Addressing the Gaps: Health Policy

Health and Education as Investments Some

Key Points

Policy Levers
Health
Public-Private Mix
Invest in Provider Capacity
Targeting to Low-income...

Education, health, and income tend to reinforce each other,

multiplying the effects of any initial change

Education
Girls Education
Maternal Education
Stipends...

Quantity (number) of children increases the cost of quality

(education/health) of children, and vice-versa theres a
quantity-quality
q
yq
y trade-off in terms of investments in children

Governance
Expenditure Tracking
Anti corruption
Anti-corruption
Performance Incentives
Accountability...

Investments in children are key: they determine the base over

which later investments can be built; insufficient investments
in the earlier stages greatly limit the possibility of later
improvements

Infrastructure
Rural development
Schools
Health clinics
Roads

Intermediate Determinants

Immediate Causes

Maternal Nutrition
HIV Prevalence

Mothers Health

Birth spacing
Health Services
Household income

Treatment of Disease

Social insurance
Seeks treatment
Breastfeeding

Child Nutrition

Reduced
Infant
Mortality

Immunizations
Use of services

Disease Prevention

Sanitation

Absence of access to credit may keep individuals stuck in a

poverty situation, even when theyd be able to overcome it by
investing in education and health (and, therefore, becoming
more productive)

Household Behavior
& Community Norms

Water
Habitat
Birth Attendant

43

Post-partum care
World Development Report (2004)
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Chapter 8 Lecture - Human Capital: Education and Health in

Economic Development

Addressing the Gaps: Education Policy

Policy Levers
Health
Public-Private Mix
Invest in Provider Capacity
Targeting to Low-income...
Education
Girls Education
Maternal Education
Stipends...
Governance
Expenditure Tracking
Anti corruption
Anti-corruption
Performance Incentives
Accountability...
Infrastructure
Rural development
Schools
Health clinics
Roads

Intermediate Determinants

Health Systems and Development

(Major Issues)

Immediate Causes

Maternal Nutrition
HIV Prevalence

Mothers Health

Measurement and distribution

Disease burden
Malaria and p
parasitic worms
HIV and AIDS
Health and Productivity
Health systems policy

Birth spacing
Health Services
Household income

Treatment of Disease

Social insurance
Seeks treatment
Breastfeeding

Child Nutrition

Reduced
Infant
Mortality

Immunizations
Use of services

Disease Prevention

Sanitation

Household Behavior
& Community Norms

Water
Post-partum care

Habitat
Birth Attendant

(World Development Report (2004)

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Health and Nutrition

Issues in Health

Causation, Risks and Effects

School
Achievement

Each factor can be a cause, risk, and/or outcome

Poverty, for example, increases the exposure and
impact of HIV/AIDS
Diseases such as tuberculosis can reemerges easily
d e to poverty
due
po ert circumstances
circ mstances
HIV/AIDS and tuberculosis increase poverty in
the short to medium run by stripping assets
Asset rundown leaves individuals, families, and
communities more exposed to future health and
nutrition shocks

Cognitive
ability
Productivity
Work
Capacity
Nutrition

Poverty
Health
Food
Insecurity

www.uni-tuebingen.de/uni/wwl/lecture3.ppt

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Chapter 8 Lecture - Human Capital: Education and Health in

Economic Development

Figure 8.10 Under-5 Mortality Rates in Various

World Regions

Figure 8.12A Childrens Likelihood to Die in

Selected Countries

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50

Diseases in Poor Countries

Figure 8.12B Proportion of Under-Five Children Who

Are Underweight, by Household Wealth, around 2008

HIV/AIDS http://unaids.org
http://actionaids.org
Productivity loss: particularly in Africa
Malaria http://www.who.int/topics/malaria/en
Countries with severe outbreaks have 1.3% lower average annual
economic growth than other countries
Tuberculosis http://www.who.int/tb/en
p
Absent 3-4 months per year from work
Forfeiting 20 to 35 percent of annual household income
Malnutrition
http://web.worldbank.org/WBSITE/EXTERNAL/NEWS/0,,contentMDK:
20839585~pagePK:64257043~piPK:437376~theSitePK:4607,00.html
Over half of child mortality in low-income countries can be linked to
malnutrition
Can you name others?
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Chapter 8 Lecture - Human Capital: Education and Health in

Economic Development

HIV/AIDS Impact on Agriculture

Table 8.3 The Major Neglected Tropical

Diseases, Ranked by Prevalence

Labor shortage
Affects land use (crops, yields, livestock)

Knowledge loss
Less intra-household learning
L schooling
Less
h li (drop-out,
(d
teacher
h mortality)
li )

Loss of formal and informal institutional

capacity
Impacts on large-scale commercial agriculture
(seasonal, migrant labor)
http://www.who.int/en
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HIV Time Horizon

HIV+ Child
of HIV+
mother

Life and death

TIME

Age 0

Birth found
HIV+
Dies

0-10

Life and death

2000

HIVchild of
an HIV+
mother
Age 0

2000-2010

0-10

2007-10

7-10

2010-12

10-12

2012-50

12-50

2017-50

17-50

2020-2050

20-50

2036-2070

36-70

Grows, helps at home, cares for

infected mother and father
Parents die: placed as orphan
with g
grandparent
p
Grandparent dies; goes to
uncles household
Enters adolescence and
adulthood must avoid
infection
Sexual relationship(s) may
become infected.
Has children
Helps children avoid infection,
nurses those who are HIV+
Becomes a grandmother, cares
for grandchildren when her
own children die.

Source, Barnett, 2002

Table 8.2 Regional HIV and AIDS

Statistics, 2009

Birth, HIV-

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Chapter 8 Lecture - Human Capital: Education and Health in

Economic Development

AIDS Effects Within the Household- The

Household- Livelihood Labor Economy

Lifetime risk of AIDS death for 15-year-old boys,

assuming unchanged or halved risk of becoming
infected with HIV, selected countries
100%

Risk of d
dying of AIDS

90%

Botswana

80%
Zimbabwe
70%

50%

Cambodia

Burkina
20% Faso
10%
0%

Zimbabwe
South Africa
Zambia

Kenya
Cte dIvoire

40%
30%

Botswana

South Africa
Zambia

60%

0%

risk halved over next 15 years

current level of risk maintained

Kenya
Cte dIvoire

Cambodia
Burkina Faso

5%

10%

15%

20%

25%

30%

35%

40%

Current adult HIV prevalence rate

Source: Zaba B, 2000 (unpublished data)

57

Source, Barnett, 2002

Malaria - A Dangerous Disease

58

Avian Influenza

Causes more than 300 million acute illnesses per year

Viral disease

Causes at least 1 million deaths per year

Highly infectious type A virus

Incubates rapidly

40% of the worlds population is at risk of Malaria

Slows economical development of countries
Deaths caused by vector
vector-borne
borne diseases
in 2000
Malaria
1.08M
Schisto-somiasis
50,000
Dengue Fever 12,000

Comes from wild birds

They dont show signs of illness
They transmit to domestic animals such as chickens or
pigs

http://www.malariasite.com

Domestic animals have no natural immunity

Potential to transmit to humans through direct contact
Humans have no natural immunity

Lymphatic Filariasis 0
0

0.2

0.4

0.6

0.8

RBM/WHO
2001

1.2

Millio
n
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Chapter 8 Lecture - Human Capital: Education and Health in

Economic Development

What is Human Trafficking?

Cycles of the Asian H5N1 Virus

in Animals and Humans

Illegal transportation of people for forced labour, sex exploitation,

forced marriages
Distinct difference between people smuggling and human
trafficking
Over one million people trafficked annually
Major profits for both individual traffickers and organised criminal
groups (Triads, Mafia, Yakuza) who mislead/deceive victims: fake
advertisements, mail-order catalogues etc.
Traffickers use blackmail, abuse, and threats to force victims to
comply with their wishes in the destination country
Very often, cases go unreported
Usually caused by poverty/lack of economic opportunities, especially
for women and children, and a demand for certain services in the
destination country

Waterfowl
Humans
Domestic
birds
Mammals
(primarily
swine)

Waterfowl

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The Who and the What

Concepts for Review

Who is targeted by traffickers?

mainly women and children

Acquired immunodeficiency
syndrome (AIDS)
Basic education
Brain drain
Derived demand
Discount rate
Educational gender gap
Health system
Human capital

Why are these people targeted by traffickers?

Generally poorer and own less property
Less well educated and more prone to the tricks of traffickers
What happens to these people?
Victims have their passports removed and destroyed
Themselves or families threatened
Bonded by debt
Arranged marriages
Slave labor
Prostitution

Human immunodeficiency
virus (HIV)
Literacy
Neglected tropical diseases
Private benefits of education
Private costs of education
Social benefits of education
Social costs of education
World Health Organization
(WHO)

What are other issues?

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