Roads versus Schools (News and Research 56)

Developing countries should invest in schools before roads—at least for now

000000000000000000000000000000000000000000000000000000000rvs.pngA “big push” investment in schools would be the way to help the output from education match or exceed that from roads

Roads or schools  Despite investment in education appearing to be a more pressing need in many developing countries, spending on roads often exceeds that on schools. This column argues that the different pace with which roads and schools contribute to economic growth is central to governments’ optimal allocation decision. Investment in schools tends to lead to a larger long-run increase in output, but the effects are more delayed than for investment in roads. This trade-off contributes to the bias towards roads, in particular when government concerns about debt sustainability and policymakers’ myopia are taken into consideration…

Investing in Public Infrastructure: Roads or Schools? Why do governments in developing economies invest in roads and not enough in schools? In the presence of distortionary taxation and debt aversion, the different pace at which roads and schools contribute to economic growth turns out to be central to this decision. Specifically, while costs are front-loaded for both types of investment, the growth benefits of schools accrue with a delay. To put things in perspective, with a “big push,” even assuming a large (15 percent) return differential in favor of schools, the government would still limit the fraction of the investment scale-up going to schools to about a half. Besides debt aversion, political myopia also turns out to be a crucial determinant of public investment composition. A “big push,” by accelerating growth outcomes, mitigates myopia—but at the expense of greater risks to fiscal and debt sustainability. Tied concessional financing and grants can potentially mitigate the adverse effects of both debt aversion and political myopia…

Borrowing from the World Bank for Education: Lessons from Korea and Mexico  By comparative static analyses, this paper tests the hypothesis that greater educational investment in Korea than in other developing countries led to the greater contribution to rapid economic growth in Korea during the 1960s-1990s. The empirical data do not support the hypothesis. No greater investment in education, including borrowings from the World Bank for education, was made in Korea than in other developing countries with the same level of per capita income. This paper therefore investigates whether the investment in education in Korea was more efficient than in other developing countries at the same level of development during the period observed. This investigation was made by comparing the characteristics of World Bank educational loans/credits for Korea and Mexico, respectively. The results do reveal significant differences between the two countries in several aspects and lend some lessons for both lenders and borrowers of educational development loans…

Education Financing Priorities in Developing Countries We use the latest surveys of 15 low income, lower-middle income and upper-middle income countries to estimate the average private and social returns by levels of education. We compare returns across country type and to alternative investments in order to establish financing priorities. Our findings indicate that for low income countries, the priority is expansion of schooling at the primary level. For lower-middle income countries there is justification for further expansion at the primary level. For upper-middle income countries, returns justify an additional push at the secondary level…

 

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