Schools and Skills in Developing Countries: Education Policies and Socioeconomic Outcomes

E HAVE studied economic growth and development since Adam Smith set out to explain the nature and causes of the wealth of nations. In the 1950s and 1960s, Gary Becker, Jacob Mincer, T. W. Schultz, and others turned economists’ attention to education and the role it plays in a variety of economic phenomena. More recently, economists have linked these two literatures, examining the impact that education can have, and in some countries already has had, on economic growth (Robert Lucas 1988; Robert Barro 1991; N. Gregory Mankiw, David Romer, and David Weil 1992). The proposition that a higher level of education promotes economic growth and development suggests that governments in developing countries should implement policies that raise educational attainment, since growth and development are objectives of nearly all developing countries. Thus many economists and international organizations argue that investment in education is a policy priority (Becker 1995; Eric Hanushek 1995; UNDP 1990; World Bank 2001). Yet, until very recently, they have said little about what governments in developing countries can do to raise educational attainment. This lack of advice does not imply that schools in developing nations are already operating effectively and efficiently. To the contrary, there is ample evidence that many schools in these countries are not very effective, and operate far from any conceivable efficient frontier (Marlaine Lockheed and Adriaan Verspoor 1991; Ralph Harbison and Hanushek 1992; Hanushek 1995; Glewwe 1999a). It is also not the case that governments and schools know how to improve educational outcomes but choose not to do so because such actions would not be in their interest. While there are situations where teachers and officials favor their interests over those of students, it is also clear