Does investing in education reduce poverty? Evidence from Ghana, Uganda and South Africa

Three broad facts about education have emerged from recent research. Firstly, almost universally education is found to lift people out of poverty. Secondly, when a comparison is made between investing in education and other forms of investment, the returns from investing in education are on average lower. Thirdly, the returns to education – in the sense of the increment in income that accrues to each year of education – are much higher for those with higher levels of education. What factors influence these trends?

A research project has confirmed that using cross-section data sets, households with a higher level of education are less likely to be poor. It has also confirmed the finding that returns to education rise with the level of education. The comparative project has shown that there are substantial differences across African economies and that large changes can occur within those economies.

Two important findings relate to a comparison of macro methods (that is, using national estimates of income and education) with micro (those based on household and firm data). Firstly, macro evidence does not support the view that investing in education has an impact on underlying productivity growth. Secondly, the macro evidence that education does have an impact on the level of income is much weaker than the micro evidence.

More specific research findings include the following:

* Education is nearly as valuable for the self-employed as it is for those in formal sector jobs.

* In Uganda and Ghana, education plays an important role in access to certain types of employment whereas in South Africa, the issue is access to employment.

* The returns to education are lower in the rural than the urban sectors. This makes it likely that one of the effects of education is to encourage a shift towards the urban sector.

* There was evidence that greater electoral competition lead to greater expenditure on primary education.

The implications for policies towards poverty are:

* The micro evidence is consistent with macro evidence that growth is a key part of any poverty reduction strategy. Poverty reduction has been much more rapid in Uganda than in Ghana because growth has been much greater.

* The key policy issue for Ghana – and indeed for most sub-Saharan African countries – is how to accelerate growth.

* Using macro data, a clear role has been found from openness to productivity growth. Economies that increase their trade have faster rates of productivity growth than those that do not. Policies that improve trade outcomes for poor countries help reduce poverty by promoting growth.

* Political reform will feed into greater resources for primary schools.

In South Africa, racial differences in unemployment incidence cannot simply be dismissed as a problem of the poorer productive characteristics of the African, coloured, and Indian groups relative to whites. While a substantial part of the race gap in the incidence of unemployment in the mid-1990s was explained by inter-group differences in observed characteristics, there remained a residual that could not be explained in this way. The residual may be due to employer discrimination or to racial differences in unmeasured determinants such as the quality of education. Poverty reduction in this context is inextricably linked to the creation of low-skill jobs.

Source(s):
Full document: ‘Openness and Human Capital as Sources of Productivity Growth: An Empirical Investigation’, Working Paper, WPS/2003-06, CSAE, University of Oxford, by Måns Söderbom and Francis Teal, 2003; ‘Education, incomes, poverty and inequality in Ghana in the 1990s’, Working paper WPS/2001.21, CSAE, University of Oxford, by Francis Teal, 2001 http://www.csae.ox.ac.uk/workingpapers/wps-list.html
Full document: ‘Race and the incidence of unemployment in South Africa’, Working paper WPS/2001.18, CSAE, University of Oxford, by Geeta Kingdon and John Knight, 2001; ‘Electoral competition and public spending on education: Evidence from African countries’, Working paper, WPS/2001.17, CSAE, University of Oxford, by David Stasavage, 2001 http://www.csae.ox.ac.uk/workingpapers/wps-list.html
Full document: ‘Education, incomes and poverty in Uganda in the 1990s’, CREDIT Working Paper 01/22, Economics Department, University of Nottingham, by Simon Appleton, 2001 http://www.nottingham.ac.uk/economics/credit/research/papers/CP.01.22.pdf

Funded by: DFID (SSRU R7611)

Date: 20 August 2003

Further Information:
Francis Teal
Centre for the Study of African Economies (CSAE)
Oxford University
Manor Road
Oxford OX1 3UL
UK

Tel: +44 (0)1865 271958
Fax: +44 (0)1865 281447
Email: francis.teal@economics.ox.ac.uk

Centre for the Study of African Economies (CSAE), UK http://www.csae.ox.ac.uk/

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