reductions occur at the lowest education levels as access becomes more universal
(Haddad et al 1990:6). It has to be remembered that there are many well established
methodological difficulties with rates of return analysis which include the problems of
estimating incomes over time in changing labour market conditions and the validity of
the assumption that the additional income received by the more educated is a result of
additional education rather than other factors (Dore 1977, Carnoy 1980)). Indeed where
modern sector salaries have declined, as they have in much of Sub Saharan Africa, and
where expanded schooling has greatly increased the supply of graduates of a particular
level, returns will have dropped, perhaps considerably, over the last decade. Rates of
return will therefore be specific to countries, to particular levels and to particular
periods in the development process.
In a somewhat different analysis Hicks (1980) has compared literacy levels (a proxy for
educational levels) with historic rates of economic growth in 83 countries. He
concludes that the twelve developing countries with the fastest growth rates also had
levels of literacy above the average (68% compared to 38% in 1960). These countries
had higher income levels and, since income is correlated to levels of literacy, this result
might have been expected. However when income level is controlled, literacy rates
were still 12 % greater in the fastest growing countries, suggesting that faster growth
rates were coincident with more developed human resources.
Wheeler's (1980) study of data on 88 countries tries to take into account interactions
between economic growth and investment in human resources over time and give some
insight into the direction of causality. His findings imply that literacy does have a
strong effect on output levels and that greater literacy influences fertility downwards.
This study suggests that increases in average literacy rates from 20% to 30% are
associated with increases in GDP of 8% to 16%, with the strongest relationships in
African countries. Marris (1982) uses data from 66 countries to argue that the cost
benefit ratio of educational investment in human resources (based on primary
enrolment ratios) ranges between 3.4 and 7.4 compared to ratios of 0.4 to 1.0 for
investments in other types of capital. He also suggests that general investment has less
effect on growth rates when it is not accompanied by educational investment.
Psacharopoulos and Woodhall (1985:22) also suggest that investments in human capital
have higher rates of return than those in physical capital in many developing countries,
whilst the reverse tends to be true in developed countries.
2.1.2 Education and productivity
At the meso and micro level there is evidence of the effects of educational investment
on productivity and this has also been widely studied. These analyses can be
conveniently separated into those that relate to agriculture, the modern sector, and the
urban informal sector.