Economics of Higher Education: National Income and Spending
Importance of tertiary education |
Correlation with national income. Educational and economic data suggest that in the present world economy, without substantial numbers of university-trained professionals a country cannot advance. No educational factor correlates as strongly with national income as does university enrollment. Although correlation is not of course causation, the link between GNI (or GDP) and university education is not coincidental, as the same relationship holds not only between countries but also over time for a single developing country: the trajectory of South Korea is highlighted in blue in Figure 1.
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Nevertheless, many economists in the past have downplayed the importance of of higher education for development: "Historically, low levels of tertiary education have not created much concern within development initiatives, since...there had been little empirical evidence of economic benefits for the population as a whole (let alone specifically for the poor)." (Bloom, Canning, and Chan, International Higher Education, 2006.) In recent years, this viewpoint is changing and the importance of tertiary education is more widely acknowledged. |
Figure 1 (gif) (pdf) |
Is primary education important? It is true that no country at present has reached high income status without near 100% primary enrollment. Full primary enrollment may prove to be a necessary condition for development, but it is not a sufficient one. (Figure 2).
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Countries with full primary enrollment have per capita incomes ranging from abject poverty ($160/yr, or less than 50 cents a day) to the wealthiest of all ($52,000/yr). This scatter is not an artifact of recent increases in primary enrollment. Togo and Madagascar have had over 90% primary enrollment since 1975 and remain poor. (Madagascar's GNI is unchanged since 1975.) Malawi and Rwanda have actually seen their GNI fall in the last 25 years even as their primary enrollments rose from 60% to 100%. Primary education alone does not ensure economic growth. |
Figure 2 (gif) (pdf) |
How much should be spent on tertiary education? |
High relative spending in Africa Some researchers have suggested that sub-Saharan African countries overspend on universities and tertiary education. African countries do spend a far higher relative amount on each university student trained than does the U.S. or Europe.
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Figure 3 (gif) (pdf) |
Higher-income countries spend only ~30% of per capita GDP on each university student; most African governments' per-student subsidy amounts to many times per capita GDP (Figure 3). For the most part the higher relative spending reflects the hard realities of providing a university education. Students in any country need the same desks, books, and buildings, and the salaries of qualified professors do not drop indefinitely just because a country also has a large supply of impoverished farmers. |
Providing a reasonable university education requires a minimum threshold of spending. For poorer African countries, that threshold represents a higher percentage of GDP. If the government is the primary source of funding for universities, high relative per-pupil spending is inescapable.
Minimum threshold for university cost. This minimum threshold can be determined by comparing countries' spending per pupil with their GDP (Figure 4, with spending shown in purchasing power parity dollars ($ PPP) for a valid comparison). Rich countries tend to spend substantial amounts on each student. No high-income country other than Korea spends less than $5000 PPP per pupil. (In Korea most university funding is private, not public).
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Figure 4 (gif) (pdf) |
As national income declines across countries, per-pupil spending initially drops but then levels off. Most low-income countries spend in the range of $1800-4000 PPP per university student per year. This band is highlighted in Figure 4. Three low-income African countries are high-spending outliers (Ethiopia, Eritrea, and Burkina Faso), and the three wealthiest sub-Saharan African countries (South Africa, Namibia, and Botswana) have opted for higher spending. The remainder of the countries lie within the marked range. |
Note that in the two lowest-spending countries (Madagascar and Cameroon), student surveys repeatedly mention problems characteristic of underfunding: massively overcrowded classrooms (Cameroon) and lecturers absent and moonlighting at second jobs (both). We therefore assume that ca. $2000 PPP / (student*year) is an approximate lower bound for the provision of a minimally acceptable university education (without laboratories, computers, or up-to-date textbooks). In the absence of private funding this cost is borne by governments.
Enrollment limits. The low enrollments in sub-Saharan African countries are then determined by these budgetary constraints and by the lack of private funding.
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Given that they cannot drop per-pupil spending any lower, most African governments respond the only way they can to keep education budgets manageable: they limit access to public universities. Sub-Saharan African countries spend about half as much of GDP on tertiary education as do high-income countries (0.7% as opposed to 1.3%) (Figure 5). But with that money, the African countries can educate a far smaller fraction of their citizens (4% as opposed to over 60%). Without private funding, the low African enrollment rates can grow only in parallel with national economies. |
Figure 5 (gif) (pdf) |
