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  • Understanding the External Social Benefits of Education in Ethiopia: A Contextual Analysis Using Young Lives
  • Ricardo Sabates, Professor, Yiran Vicky Zhao, PhD Student, Rafael Mitchell, Lecturer, and Sonia Ilie, Lecturer

introduction

The economic value of education to individuals, families, communities, and nations continues to be one of the key justifications for investments in education globally. In a recent review of the last 60 years, Psacharopoulos and Patrinos (2018) estimate that the private average global return to one year of schooling was nine percent per year between 1950 and 2014. Evidence indicates that private returns vary by global region, by countries’ level of economic “development”, and for different levels of education. In low-income countries, such as the one considered in this paper, the average private return to primary education is estimated to be three percent lower than for high-income countries, however the private return to secondary and higher education are estimated to be five percent and 14 percent higher, respectively (Psacharopoulos and Patrinos 2018).

The total value of education should capture more than the economic benefit to individuals. Returns to education include both economic and non-economic aspects, or according to McMahon (2002) both market and non-market benefits. Also, returns to education can be private as well as social, that is, relevant to the wider society and not just the individual accruing education. As noted by McMahon (2002, 2007, 2018), the total value of education should therefore capture the value of both economic and non-economic outcomes that accrue to societies, in addition to all private returns.

For instance, the large private return from higher education in low-income countries is usually estimated from a small proportion of graduates who benefit from subsidized higher education (not just in terms of tuition fees, but in many cases living expenses), which raises the public costs-per-student to very high levels relative to the cost-per-student at primary and junior secondary levels. This leads to problems for efficiency, since social rates of return in low-income [End Page 45] contexts are unknown and unaccounted for in investment decisions. It also raises the issue of equity, as the per-capita expenditure on higher education in many low-income countries is seven to 10 times higher than for primary and three to four times higher than for secondary education, and opportunities for study are often limited to the comparatively affluent students who progress to this phase of education (Ilie and Rose 2018).

The non-economic social benefits are defined here as externalities. That is, they are the non-economic, non-market, non-monetary benefits that arise from education in spheres that benefit others in society. Externalities include, for instance, the contribution of education to the evolution of civic institutions, human rights, political stability, environmental sustainability, health and innovation, among others. Since social rates of return are difficult to estimate for the individual, and externalities accrue at the community or societal levels, they are often overlooked in relation to education and can potentially lead to underinvestment, especially at higher levels of education. This therefore justifies, at least to some extent, state intervention and investment in education, notwithstanding distributional issues related to the direction and later individual benefits from that government expenditure, particularly in some low-income countries (Ilie and Rose 2018).

In estimating the benefits of education beyond income, Psacharopoulos and Patrinos (2018) have shed light on the social return to education globally, by regions and levels of education. However, the estimated social returns in their work exclude an account of the externalities of education as defined here. As they argue, insufficient evidence of the non-monetary social returns to education (i.e. externalities) has led to a focus on social returns being predominantly estimated in terms of societies’ spending on education alone. This has also resulted in total returns to education being underestimated. Notwithstanding these limitations, the estimated social economic value of primary education in low income countries between 1950 and 2014 is 22 percent, for secondary education 18 percent, and for higher education 13 percent (Psacharopoulos and Patrinos 2018). This latter estimated social economic value of higher education is less than half the estimated private return.

In the context of...

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