0.6 Investment in human capital: education and health  (Page 5/16)

A similar program began in South Africa in 1998: The Child Support Grant (CSG) which provides direct cash transfers to low-income households from the public budget. The grant is subject to a means test: any family showing financial need receives $30 per child per month, for all children less than 17 years old.

“Hard Cash Boosts Child Health in South Africa”, Science, September 12, 2014, 345(6202):1264.

Two thirds of all families in South Africa are eligible for the CSG. This program is yet another good example of improving health of the poor by just “giving them the money”. It also serves as an excellent illustration of effective human capital formation: children in CSG families had improved growth, had better attendance at school, higher physical stature, and decreased illness. The program is still evolving. Many families that are eligible still are not receiving CSGs, leading some to argue for dropping its means test and provide unconditional cash transfers to every household with children.

Combining physical capital formation with human capital formation: peru and the one laptop per child program

For several years in the early 21 ^st century, the author visited the Peruvian highlands each year to help monitor the economic development effects of a large gas pipeline running from the Peruvian Amazonian jungles, over the Andes and to a port on the Pacific. On one such visit I learned that a 2007 World Bank/UN publication on primary education rated Peru’s primary education system as dead last amongst 131 nations.

Beginning in 2008 the Peruvian Government began making a sizable investment in hardware to help rectify this problem. Little Green Laptops, pioneered by MIT media labs (one laptop per child) sold for $188 (2008). But highland villagers in Peru can barely afford pencils or paper, much less laptops.

So, the Government ordered and gave away 275,000 XO laptops to rural families. They were provided to help primary schoolchildren. The biggest problem early on was keeping older siblings eager to play computer games away from the machines so that primary schoolers can do their work.

These are hard-drive free machines operating on Linux with mesh wireless networks so each computer in each village can talk to computers in other villages.

Note that this Human Capital formation accomplishment required also Physical Capital formation (purchase of laptops). It is not at all unusual that human capital investment must be done in conjunction with physical capital investment.

Rates of return on education

Dozens of empirical studies since 1980 (especially from the NBER) confirm that a driving force in economic growth in all countries has been investment in skills and ideas –Human Capital− more so than investment in machines and buildings, also very important. We noted that many studies suggest that the annual rate of return on investment in public education worldwide is on the order of 20%. Rates of return on investment this high are rare indeed, worldwide.

Moreover, as there is empirical evidence that investment in secondary education for females has a notably higher rate of return than that for males in several countries (Dowrick). Steve Dowrick (2003, May), “Ideas and Education: Level or Growth Effects? NBER Working Paper No. 9709.