ADDIS ABABA UNIVERSITY

COLLEGE OF EDUCATION AND BEHAVIORAL STUDIES

{ DEPARTMENT OF
EDUCATIONAL PLANNING AND MANAGEMENT
 
MODULE TITLE: The Economics and Financing of
Education
 MODULE CODE: EDPM – 614

 
 Group Assignment I

Name of Group Participants

1. {
Dereje Tadesse ------------ID.No. GSR/5959/11
2. Girma Aboye------------ID.No.GSR/2023/11
3. Fekadu Likisa -------- ID.No.GSR/0628/11
1. Describe and explain the essence of vintage advantage?
Cohort analysis, school year
 A Vintage can be defined as a group of loans that all
originated with in a specific time period. The time period
considered is problem-specific and is called the vintage data.
 The Vintage can be viewed as “ a set of over lapping time

series with different starting times” (Breeden, 2007, p. 4761).

 Vintage analysis refers to the process of monitoring groups of

loans and comparing performance across past groups.

 Cohort analysis is a type of learning which is chiefly

conducted by observation over a time period. It functions by

analyzing a specific group of individuals who have an
attribute or experience in common within a given time period.
It’s a good tool that can be used for retaining customers and it
is very useful for business proprietors who own websites. You
need to learn how to interpret this data.
 Some of the advantages of performing a cohort
analysis are: It facilitates accuracy of the study. For
businesses keeping track of their customers, it
provides a clear demarcation between engagement
and growth. It helps to make an effective
comparison of the result between two or more
groups.  It helps to study and analyze a wide range
of data. By using cohort analysis, it helps in making
the decision in lesser time.
2.What is economics of education? Why economics of
education? After all, is it important for developing countries
like Ethiopia? Why? Do you think the Ethiopian education
system is using it? If yes when, how and for what level and
purposes
 Economics of education is the study of economic issues

relating to education, including the demand for education,

the financing and provision of education, and the
comparative efficiency of various educational programs and
policies.
 Economics of education is a field within economics that

focuses on two main themes: the current state of, and efforts
to improve, the economics curriculum, materials and
pedagogical techniques used to teach economics at all
educational levels; and research into the effectiveness of
alternative instructional techniques in economics.
 It is important for developing countries like Ethiopia in
that no country can achieve sustainable economic
development without substantial investment in human
capital.
 Education enriches people's understanding of themselves

and the world. It improves the quality of their lives and leads
to broad economic and social benefits to individuals.
3. Describe and explain the theoretical development of
economics of education? Link those development episodes
with the origin and development of economics of education
 Economics of education has been used frequently in the 20th

and 21st centuries, but the concept has existed in the West for
centuries. "Modernization", "Westernization", and especially "
industrialization" are other terms often used while discussing
economic development.
 Economic development originated in the post-war period of
reconstruction initiated by the United States. In 1949, during his
inaugural speech, President Harry Truman identified the
development of undeveloped areas as a priority for the west:
 In economics, the study of economic development was borne out

of an extension to traditional economics that focused entirely on

national product, or the aggregate output of goods and services.
 Economic development was concerned with the expansion of

people's entitlements and their corresponding capabilities,

morbidity, nourishment, literacy, education, and other
socio-economic indicators. Borne out of the backdrop of
Keynesian economics (advocating government intervention), and
neoclassical economics (stressing reduced intervention), with the
rise of high-growth countries (Singapore, South Korea,
Hong Kong) and planned governments (Argentina, Chile, Sudan,
Uganda),
4. Describe and explain the scope of economics of education by
relating to the context of Ethiopia?
 The scope of economics of education however was widened

subsequently as a natural corollary of the theory. Attempts

have been made to estimate the economics returns different
types and levels of accordance and to develop models of
planning of education in accordance with economic
requirements of the individual and of the economy.
 Economics of education logically covers;

- All aspects of the demand for schooling

- Relationship between educational expenditure and income
- Contributions of education to GNP
- Manpower planning and
- The impacts of schooling on subsequent outcomes.
5. What is the essence of PPF/PPC? Describe and explain its theoretical concepts from
the perspective of opportunity cost, efficiency, measurability as well as its
applicability by giving practical examples?
 The Production Possibilities Curve (PPC) is a model used to show the tradeoffs

associated with allocating resources between the production of two goods. The PPC
can be used to illustrate the concepts of scarcity, opportunity cost, efficiency,
inefficiency, economic growth, and contractions.
 Production Possibilities Curve (PPC) (also called a production possibilities frontier)

a graphical model that represents all of the different combinations of two goods
that can be produced; the PPC captures scarcity of resources and opportunity costs.
 The Production Possibilities Curve (PPC) is a model that captures scarcity and the

opportunity costs of choices when faced with the possibility of producing two
goods or services. Points on the interior of the PPC are inefficient, points on the PPC
are efficient, and points beyond the PPC are unattainable. The opportunity cost of
moving from one efficient combination of production to another efficient
combination of production is how much of one good is given up in order to get
more of the other good.
 The shape of the PPC also gives us information on the production technology (in

other words, how the resources are combined to produce these goods). The bowed
out shape of the PPC indicates that there are increasing opportunity costs of
production.
6. Education is both an investment and consumption that can be
characterized as giant industry having analogy with a production
model). Do you agree with this statement? Justify your answer/s
briefly. Do not forget to critically examine the analogy between the
production model and the education function
 Yes, education in itself is consumption as well as investment.

The activities of an educated person such as enjoying non-

pecuniary (non-monetary) benefits like reading stories and
poems, enjoying higher social status, etc. are activities of
consumption and the monetary gains from a lifetime's earnings
are taken as investment.
 The absorption of a large number of educated persons by the

education system itself for carrying out teaching and research

responsibilities refers to consumption whereas the surplus
educated manpower constitutes investment which contributes to
human capital formation in the economy and forms the basis for
raising the level of production.
7. Education augments productivity, trainability, segmentations, as well as
competitions in a society. Do you agree with this statement? Justify your
response/s by referring to economic theories and educational development
 Yes, education in every sense is one of the fundamental factors of

development. No country can achieve sustainable economic

development without substantial investment in human capital.
Education enriches people’s understanding of themselves and world. It
improves the quality of their lives and leads to broad social benefits to
individuals and society. Education raises people’s productivity and
creativity and promotes entrepreneurship and technological advances.
In addition it plays a very crucial role in securing economic and social
progress and improving income distribution.
 According to Lucas (1998), for example, the higher the level of education

of the work force the higher the overall productivity of capital because
the more educated are more likely to innovate, and thus affect
everyone’s productivity. In other models a similar externality is
generated as the increased education of individuals raises not only their
own productivity but also that of others with whom they interact, so
that total productivity increases as the average level of education rises
(Perotti, 1993).
 The impact of education on the nature and growth of exports,
which, in turn, affect the aggregate growth rate, is another way in
which human development influences macro performance.
 There is also a positive feedback from improved education to
greater income equality, which, in turn, is likely to favor higher
rates of growth. As education becomes more broadly based, low-
income people are better able to seek out economic opportunities.
For example, a study of the relation between schooling, income
inequality and poverty concludes that ‘clearly education is the
variable with the strongest impact on income equality’
(Psacharopoulos, 1992).
 Education make a country’s export sector more competitive.
Knowledge accumulation influences a country’s trade performance
and competitiveness (Grossman and Helpman 1989);
 Education is indispensable to economic development. No economic
development is possible without good education. A balanced
education system promotes not only economic development, but
productivity, and generates individual income per capita.
8. Education creates earning differential, and this is true even in Ethiopia. Do you
agree with this statement? Justify and explain it.
 Yes, I agree :

 Investment in human capital leads to higher productivity of workers, which in

turn causes higher earnings.

 Education has such a strong bearing on individual earnings; it must also affect

the way income is distributed. That means, measure of income inequality in a

society largely reflect inequalities in individual attainment.
 Human capital investment confers benefits on individuals, enterprises and

societies. These benefits may be economic in nature and accrue in the form of
additional earnings, productivity or economic growth.
 The earliest explanations of the concept of human capital suggested that
education or training raised the productivity of workers, and hence increased
their lifetime earnings (Woodhall, 1987b). Education was, from the point of
view of the human capital school, a way of imparting knowledge and use skills
that made the worker more productive. The earnings of workers with more
education were, therefore, justifiably more than those with less education
because they were more productive than the less educated workers. This is the
basis of viewing education as an a form of investment in human capital, that is,
education raises the productivity of workers and that higher earnings of the
educated reflect the value of their marginal productivity.
9. What is the essence of 'economic of scale' in education?
 Economies of Scale refer to the cost advantage experienced by a firm when it

increases its level of output. The advantage arises due to the inverse relationship
between per-unit fixed cost and the quantity produced. The greater the quantity
of output produced, the lower the per-unit fixed cost. Economies of scale also
result in a fall in average variable costs (average non-fixed costs) with an increase
in output. This is brought about by operational efficiencies and synergies as a
result of an increase in the scale of production.
 Economies of scale can be implemented by a firm at any stage of the

production process. In this case, production here refers to the economic concept
of production and involves all activities related to the commodity not involving
the final buyer. Thus, a business can decide to implement economies of scale in its
marketing division by hiring a large number of marketing professionals. A
business can also adopt the same in its input sourcing division by moving from
human labor to machine labor.
 Effects of Economies of Scale on Production Costs are

 It reduces the per unit fixed cost. As a result of increased production, the fixed

cost gets spread over more output than before.

 It reduces the per unit variable costs. Economies of scale bring down the per unit

variable costs. This occurs as the expanded scale of production increases the
efficiency of the production process.
10. Describe and explain the difference between educational expenditure
and educational costs.
 There is a tendency to use the terms expenditure and cost
interchangeably. However, the terms ‘expenditure on education’ and
‘cost of education’ are not the same. Cost of education refers to the
amount of money spent to acquire or impart education. On the other
hand, information on expenditure on education is more easily accessible
and available from budgets and accounts of the Institution at the micro
level and the Central and State governments at the macro level.
 We use the term 'cost' and refer to cost per student pertaining to a

particular level (primary, secondary, higher secondary or university).

Similarly, cost per student to the institution/state for a particular course
or level is calculated. But cost per student in the institution/state may
include expenditure incurred on staff salaries, equipment and buildings,
maintenance costs of apparatus, library books, sports, etc. From the
point of view of the individual, cost of acquiring education includes
expenditure on books and stationery, school fees, travel cost and in case
of students making use of hostels, it will also include rent of hostel
accommodation, mess charges, etc,
11. Describe and explain the major types of educational costs. Do not forget to
explain their behaviour.
 There are two types of Educational Costs :
i. Individual or Private Costs
ii. Institutional or Public or Social Costs
 In this cost there are also three types of costs;
i. Direct Costs
ii. Indirect Costs
iii. Opportunity Costs

iv. Individual Costs or Private Cost :

 Individual costs or private costs of education are those costs of education
incurred by a learner or by his/her parents/guardians or by the family as a
whole.
 Individual costs are of two types: direct and indirect.
 Examples of private costs are as follows :Tuition and examination fees and
other such fees, institutional supplies, manuals and books, transport,
uniforms and foregone earnings.
II. Institutional/Public/Social Costs :
 These costs concern society and refer to such costs (or

expenditure) as are borne out as a result of all education and

training activities in a society at a given point of time. Costs
incurred at the institutional level (government, private or
mixed) are called institutional costs or public costs of
education.
 Public costs are those that include financing by the

government on the basis of taxes, loans and other public

revenues.
 The institutional costs of education are, generally, analyzed

in terms of (i) variable and fixed costs of education, (ii)

recurring and non-recurring costs of education and (iii)
current and capital costs of education.
Institutional/Public/Social costs are also of two types: direct
and indirect.
 Direct Costs : are those costs that are directly visible. They include all money
expenditure incurred on different items by the student. Typical direct costs
include items such as instructional and other programme materials printed,
fuel, oil and repairs of vehicles used for home-to-school transportation,
centralized data processing services, in-house equipment repairs, field trips,
expenditure on tuition fees, other fees and charges, purchase of books,
stationary, uniforms, hostel expenses and transport.
 Indirect Costs : are those costs that cannot be directly charged to a particular
programme, but are attributed to services, which are necessary to operate the
program. Such services include, but are not limited to, accounting, budgeting,
payroll preparation, personnel management, purchasing, warehousing and
centralised data processing. These expenses are not paid directly to your school,
but are associated with attending school.
 Opportunity Cost : are everywhere, due to scarcity and the necessity of
choosing. Opportunity cost is not what you choose when you make a choice -it
is what you did not choose in making a choice. Opportunity cost is the value of
the forgone alternative - what you gave up when you got something. The
opportunity cost of going to college is the money you would have earned if you
worked instead. On the one hand, you lose four years of salary while getting
your degree; on the other hand, you hope to earn more during your career, due
to your education, to offset the lost wages. Thus, opportunity cost is the cost of
alternatives foregone.
12. Explain the essence of opportunity costs in education. Show
how the concept of opportunity cost functions in the context of
Ethiopia.
 Opportunity Cost is a concept you did not see in the

definition of economics. But not seeing it doesn’t mean that it

isn’t there. Opportunity costs are everywhere, due to scarcity
and the necessity of choosing. Opportunity cost is not what
you choose when you make a choice -it is what you did not
choose in making a choice.
 Opportunity cost is the value of the forgone alternative - what

you gave up when you got something. The opportunity cost

of going to college is the money you would have earned if
you worked instead. On the one hand, you lose four years of
salary while getting your degree; on the other hand, you hope
to earn more during your career, due to your education, to
offset the lost wages. Thus, opportunity cost is the cost of
alternatives foregone.
 Example, suppose you are working in a leather manufacturing company and by
offering your service you are paid Rs. 6,000 a month. Had you not joined the above
company, let us suppose that you could have joined a textile firm with a monthly
salary of Rs. 3,500. This means that your value in the next best alternative use is Rs.
3,500. From the individual point of view, this is called transfer earning. Note that
transfer earning is similar to opportunity cost. From the societal point of view, this is
called opportunity cost which is Rs. 3,500 in keeping you employed in the leather
manufacturing company.
 The term opportunity cost takes cognizance of the fact that each investment option

involves a sacrifice of alternative opportunities to use resources. This sacrifice could be

either for the present consumption or for some other form of investment. More
specifically, the opportunity cost of a commodity/service is the value of the next best
alternative sacrifice made, in order to obtain that commodity/service. Therefore, though
there could many alternatives to give up in order to get what is desired, the
opportunity cost of a decision is the value of the most desirable alternative to be given
up so to get what is needed. For example, the opportunity cost of a collage graduate
who decides to pursue university education, is the salary of the best employment
he/she would have obtained. It is against this backdrop that stakeholders in the
education sector should be cognizant of the fact that, educational investments use
resources that have alternative uses. Some of these resources are namely;
 Students‟ or pupils‟ time
 Teachers‟ time
 Finances
 Equipment, Buildings and Land among others.
13. Education may create equality, inequality, or both. Do you agree
with this statement? Justify and explain it. Do not forget to relate your
analysis with the context of Ethiopia.
 There is strong evidence that education, in fact, causes higher earnings

and that the value of college has consistently grown relative to high
school since 1980. Beyond degrees, skills, acquired through informal or
formal education and training, also predict higher earnings. So, it is
apparent to nearly everyone that enhancing the opportunities to
acquire knowledge and skills would make many Ethiopian better off.
Yet, this idea—that more or better education can reduce inequality—
has come under fire as of late.
 Investment in human capital leads to higher productivity of worker,

which in turn causes higher earnings.

 Education also help to reduce income inequalities.

 Measure of income inequality in a society largely reflect inequalities in

educational attainment. The net effect of the expansion of schooling

has been a reduction in the dispersion of earnings and hence a more
equal income distribution.
 In general education creates both.
14. Education and the labour market have dual relationship. Do
you agree with this statement? Justify and explain it.
 Yes, different perspectives exist to reveal the relationship

between education and the labor market. Two of the

perspectives are discussed below.
 The first perspective, that focuses on the relationship between

education and the labor market, is the human capital theory.

Human capital is based on a set of factors including knowledge,
qualifications, abilities and individual qualities, that influence
and facilitate the economic, social and personal welfare of
people (OECD, 2001; as cited in Nembot Ndeffo, 2010). Human
capital is about the personal variables that affect the
development of a person’s career. Developing human capital is
important in creating employability (McArdle, Waters, Briscoe &
Hall, 2007). Human capital is helpful in the production of
activities, goods and services (Nembot Ndeffo, 2010), which are
all key contributors to the productivity of the labor market.
 Human capital makes them more productive in the labor market and
reflects in higher earnings (Becker, 1964; as cited in Allen & Weert, 2007).
Education can be viewed as an instrument for employability, for the
improvement of productivity and for an increase of earnings. Fasih (2008)
states that education is a main determinant for good labor market outcomes.
 The job assignment model is mentioned as a second perspective. This
model focuses more on the importance of the role demand plays in the labor
market (Allen & Weert, 2007) and focuses on the characteristics of particular
jobs. The assignment model originates from the analysis of determinants of
income distribution (Tinbergen, 1951; as cited in Sattinger, 2012). Alternative
forms of this model have been developed in recent years. The assignment
model of Sattinger (1975, 2012) states that the most competent workers must
work at the most complex jobs and that less competent workers must work
at the more simple jobs (Allen & Weert, 2007). The right person with the
right skills must work at the right place in order to optimize earnings and
productivity. If this is not the case a mismatch can occur; a mismatch
between the supply and demand of the labor market (Sattinger, 1993).
Employees are affected by this mismatch between the requirement of the
labor market and their own characteristics (Sattinger, 2012).
15. Describe and explain the major approaches to planning in education. Relate its
theoretical aspects with the real context of Ethiopia
 SOCIAL DEMAND APPROACH

 Is the first approach that takes educational needs in terms of the current demand for

education at the different levels and projects them on the basis of population increase,
age distribution, long-term national or social goals (inarticulate or defined) and on the
basis of what is known about state and consumer preferences for education.
 Among such goals and preferences are universal literacy, universal compulsory

primary education, and cultural objectives. The stress is upon education as social
infra-structure for development purposes, and as an end in itself.
 MANPOWER REQUIREMENT APPROACH

 Is the second approach, which is based on the fact that, as we saw earlier, the main

link of education with economic development is through the knowledge and skills it
produces in the labor force. To the extent that the educational system produces
qualified people in the right numbers and places, the major part of the economic and
social contribution of educational planning is achieved, provided that in so doing the
educational system has not consumed so great a proportion of resources as to set back
the development plan itself. Various methods exist of estimating future manpower
requirements and the demand they will make on the education system.
 A further limitation on the manpower approach is that it leaves out of account

provision for education as a ‘consumers’ good’, and it makes no provision for the
‘social minimum’.
 EDUCATION-OUTPUT RATIO METHOD
 The third method is based on the capital-output ratio approach It relates the
stock of educated people and the flow of children and students completing
education at the different levels directly to the national output of goods and
services without passing through the intervening stage of making manpower
forecasts. A series of linear equations are set up relating the stock of persons
who have completed a given level of education, and the number of students at
each level, to the aggregate volume of production. Every method has its
difficulties and limitations. The problem here is that assumptions have to be
made about teacher-student ratios and about the adequacy of the relations of the
education ‘mix’ to the product ‘mix’ at the base from which the projection is
made. If these assumptions are incorrectly made they will invalidate the
conclusions.
 A further difficulty common to both the manpower and the education output
ratio approaches is the assumption that a given output requires a fixed volume
of manpower with fixed amounts of education and training. The fact is,
however, that certain latitude exists for substitution of capital for manpower in
general, and for substituting additional education and training for man-hours.
The model provided by Professor Tinbergen, however, breaks new ground in
setting out a comprehensive system of variables and relationships which
provide a conceptual basis for a quantitative estimation for the planning of the
educational system.
 AGGREGATE METHOD
 The fourth method tries to relate educational needs to the whole demand of society for education
rather than to the level of output or to manpower, and is based on norms and patterns which
emerge from an empirical study of the educational situation in countries at different stages of
development. Among them are (a) the proportion of GNP devoted to education globally and (if
possible) by sector; (b) the proportion of public expenditure devoted to education and its
different sectors; (c) the proportion of over-all investment devoted to education; (d) the
proportion of the population enrolled at the different educational levels; (e) the above
information corrected by estimates of wastage; (f) the proportions of the school-age and student
population enrolled at different levels.
 A number of problems arise in respect of the interpretation of the coefficients listed. For example,
the proportion of GNP spent on education will vary with the age composition of the population
and not reflect an equality of effort. Another variant strongly influencing the comparison is the
ratio of per capita teachers’ salaries to per capita income, as the country differences are wide and
the greatest proportion of educational cost is made-up of teachers’ remuneration.
 COMPREHENSIVE APPROACH
 Fifth, there is what we may call the human resources assessment approach which is a
comprehensive one. It was developed by Professor Harbison. It starts from the position that
education is one of the main sources of human resource formation, other sources being measures
in the fields of manpower, employment, training and health. The strategy of human resource
development consists of integrating these factors with general economic and social development
planning. It takes into consideration such factors as the scale of development feasible considering
the availability of specialized manpower, the scale of development needed to absorb the backlog
of unemployed and the new entrants to the labor force, the extent of in-service training in
industry, the pattern of investment priorities envisaged in the plan and the broad economic,
social and educational goals of development planning.
16. Review the concept of cost benefit analysis in education and
justify its practical applicability in the context of Ethiopia
 A cost benefit analysis is done to determine how well, or

how poorly, a planned action will turn out. Although a cost

benefit analysis can be used for almost anything, it is most
commonly done on financial questions.
 A cost benefit analysis finds, quantifies and adds all the

positive factors. These are the benefits. It then identifies,

quantifies and subtracts all the negatives, the costs. The
difference between the two indicates whether the planned
action is advisable. The real trick to doing a cost benefit
analysis well is making sure you include all the costs and all
the benefits and properly quantify them.
 Cost-benefit analysis is a term that refers both to: helping to
appraise, or assess, the case for a project, programme or
policy proposal;
 Cost-benefit analysis is an approach to making economic

decisions of any kind.

 The process involves monetary value of initial and ongoing

expenses vs. expected return. constructing plausible

measures of the costs and benefits of specific actions is often
very difficult. In practice, analysts try to estimate costs and
benefits either by using survey methods or by drawing
inferences from market behavior.
17. What is the essence of human capital theory and human development? Explain
their similarities and differences (if any)
 Human capital theory is concerned with knowledge and experiences of small-scale

business owners. The general assumption is that the human capital of the founder
improves small firms' chances of survival (Bruederl et al. 1992). Human capital acts
as a resource. However, human capital theory studies usually assume that
experiences are translated into knowledge and skills. This assumption is
problematic, however, because length of experience is not necessarily a good
predictor of expertise (Sonnentag 1995). Therefore, it is not surprising that human
capital factors, such as length of managerial or industry experiences or education,
are not strong predictors of success.
 Human capital theory, formalized by Becker (1962) but contemporaneously

developed by others, helps us understand the training activities of firms. It (re-)

introduced the view that education and training represent investment in future
productivity and not just consumption of resources. In this perspective, firm and
workers alike depend on investments in human capital to increase competitiveness,
profits, and pay.
 General human capital is defined as all skills that are identically useful to many

firms, including the training company. Firm-specific skills, in contrast, increase

productivity only in the firm in which the skills were acquired. In a competitive
market setting, workers always get a wage that equals their marginal productivity
and thus, in the case of general human capital, workers earn the same wage
wherever they work.
18. What is the essence of economic growth and economic
development? Explain their similarities and differences (if any)
 Economic Growth refers to the rise in the value of everything

produced in the economy. It implies the yearly increase in the

country’s GDP or GNP, in percentage terms. Economic Growth is
defined as the rise in the money value of goods and services
produced by all the sectors of the economy per head during a
particular period . It is a quantitative measure that shows the
increase in the number of commercial transactions in an
economy.
 Economic Growth is often contrasted with Economic
development which is defined as the increase in the economic
wealth of a country or a particular area for the welfare of its
residents. Here you should know that economic growth is an
essential but not the only condition for economic development.
 Economic Development is defined as the process of increase volume of
production along with the improvement in technology, a rise in the level of
living, institutional changes, etc. In short, it is the progress in the socio-
economic structure of the economy.
 The fundmntal differences between economic
growth and economic development are: 
 Economic growth is the positive change in the real output of the
country in a particular span of time economy. Economic
development involves a rise in the level of production in an
economy along with advancement of technology, improvement in
living standards and so on.
 Economic growth is one of the features of economic development.
 Economic growth is an automatic process. Unlike economic
development, which is the outcome of planned and result-oriented
activities.
 Economic growth enables an increase in the indicators like GDP,
per capital income, etc. On the other hand, economic development
enables improvement in the life expectancy rate, infant mortality
rate, literacy rate and poverty rates.
 Economic growth can be measured when there is a positive
change in the national income, whereas economic development
can be seen when there is an increase in real national income.
 Economic growth is a short-term process which takes in
to account yearly growth of the economy. But if we talk
about economic development it is a long term process.
 Economic growth applies to developed economies to

gauge the quality of life, but as it is an essential

condition for the development, it applies to developing
countries also. In contrast to economic development
applies to developing countries to measure progress.
 Economic growth results in quantitative changes, but

economic development brings both quantitative and

qualitative changes.
 Economic growth can be measured in a particular
period. As opposed to economic development is a
continuous process so that it can be seen in the long
run.
 To understand the two terms economic growth and economic
development, we will take an example of a human being. The
term growth of human beings simply means the increase in
their height and weight which is purely physical. But if you
talk about human development, it will take in to account
both the physical and abstract aspects like maturity level,
attitudes, habits, behavior, feelings, intelligence and so on. In
the like manner, growth of an economy can be measured
through the increase in its size in the current year in
comparison to previous years, but economic development
includes not only physical but also non-physical aspects that
can only be experienced like improvement in technology and
infrastructure, etc.
 In general, economic development is a much bigger concept

than economic growth. In other words, economic

development includes economic growth.
Basis for
Economic Growth Economic Development
Comparison
Economic Development involves rise in the
Economic Growth is the positive
level of production in an economy along with
Meaning change in the real output of the country
the advancement of technology, improvement
in a particular span of time.
in living standards and so on.
Concept Narrow Broad
Increase in the indicators like GDP, per Improvement in life expectancy rate, infant
Scope
capita income etc. mortality rate, literacy rate and poverty rates.

Term Short term process Long term process

Applicable to Developed Economies Developing Economies

How it can be
Upward movement in national income. Upward movement in real national income.
measured?
Which kind of
changes are Quantitative changes Qualitative and quantitative changes
expected?
Type of process Automatic Manual

When it arises? In a certain period of time. Continuous process.

19. Describe and explain the essence and applicability of the theory of demand
and supply in education. Consider all the determinants of demand and supply
of education.
 Demand refers to how much (quantity) of a product or service is desired by
buyers. The quantity demanded is the amount of a product people are willing
to buy at a certain price.
 The law of demand states that if all other factors remain equal, the higher the
price of a good, the less people will demand that good. That means the higher
the price, the lower the quantity demanded.
 The demand for the school places depends on the price of schooling as well as
on the price of substitutes and compliments to schooling, the opportunity cost
of children’s time, the level of the population and the income of families.
 Supply represents how much the market can offer. The quantity supplied
refers to the amount of a certain good producers are willing to supply when
receiving a certain price.
 The law of supply demonstrates the quantities that will be sold at a certain
price.
 The quantity supplied depends on the price schools receive in fees for a year
of school education and the prices the owners of schools must pay for inputs.
 supply and demand as an economic model of price determination in a market.
It concludes that in a competitive market, the unit price for a particular good
will vary until it settles at a point where the quantity demanded by consumers
(at current price) will equal the quantity supplied by producers (at current
price), resulting in an economic equilibrium of price and quantity.
 This apply to schools as Public schools are funded by taxes, which are
extracted from parents and non-parents alike. Taxpayers have no choice
in the matter—their money is taken by force and used for purposes they
may or may not approve. For many parents, these taxes make private
education for their children impossible. The absence of choice does not
end there. Parents who cannot afford private education or home
schooling have little choice but to send their children to public schools.
You are forced to pay for a service you may not want or need. You are
forced to support the teaching of ideas with which you may or may not
agree. Public schools obtain both their funds and their customers by
compulsion.
 Public schools describes supply and demand as an economic model of
price determination in a market. It concludes that in a competitive
market, the unit price for a particular good will vary until it settles at a
point where the quantity demanded by consumers (at current price)
will equal the quantity supplied by producers (at current price),
resulting in an economic equilibrium of price and quantity.
 A privatized educational system gives parents and students meaningful
choices. And it respects the moral right of each individual to act on his
own judgment. For decades, politicians and educators have suggested
an endless stream of “reforms.” Yet, the performance of our schools
continues to decline. It is time to truly allow supply and demand into
education. It is time to abolish public schools.
20. The benefits of education can be measured. Do you agree
with this statement? If your answer 'yes,' how do measure it?
If your answer 'no' why?
 Yes, we can measure the benefits of education by its output at
the end of finishing the desired level of education. For
example at the end;
 They develop the physical and mental potential and the
problem-solving capacity of that educated person.
 Behaviorally changed in their character; can be citizens who
respect human rights, stand for the well-being of people, as
well as for equality, justice and peace, endowed with
democratic culture and discipline.
 Education, always has been, and always will be, the most
effective way to combat adversity. Rather than harshening
laws to prevent people from making mistakes, we can
encourage them to become productive members of society by
providing them with the education and training.
21. To what extent economics of education help to enhance
policies, planning and strategies? Relate the context of
Ethiopia. Try to address all the major problem that are
indicated on the current Education and Training Policy of the
nation (TGE, 1994).
 For the past years , it is known that our country's education is
entangled with complex problems of relevance, quality,
accessibility and equity. The objectives of education do not
take cognizance of the society's needs and do not adequately
indicate future direction.
 The absence of interrelated contents and mode of
presentation that can develop student's knowledge, cognitive
abilities and behavioral change by level, to adequately enrich
problem-solving ability and attitude, are some of the major
problems of our education system.
 A policy change is normally a response to a problem or set of
problems in the sector, and must, therefore, start with an
appreciation of the educational sector and its context. In
addition to the analysis of the sector itself, policy analysis
should consider a number of aspects of the social context,
including political, economic, demographic, cultural, and
social issues which are likely to affect the decision making
and even implementation processes of the education sector.
 In all when a country is in a problem it wants a change. Now
for enhancing the change policy is designed, Once a policy
has been chosen, planning for policy implementation should
begin immediately. , for the implementation of the plan
strategies are designed and for all this developmental process
economics of education enhance the all process.
22. Describe the historical development of planning and
economics of education in brief.
 Planning and economics have something in common – both of
them are responses for the challenges arising out of scarcity of
resources and possibility of alternative uses and maximum
utilization of limited resources.
 Planning for economic development has become basic
necessity all over the world.
 Educational panning is a major part of over all planning for
social and economic development.
 The basic principle of objective of education is to find a major
place in overall planning and plans have to provide for
financing educational development for meeting these
educational objectives. Education is in addition a public
service, demand for which is in excess of the supply that any
Government is able to make. This is because of the unchanging
birth rate, falling death rate and the consequent growth of
population in the age-group between 5-24 and the rising
demand for education.
23. Describe and explain the essence of fiscal decentralization
focusing on the Ethiopian context?  
 According to Bland (2006), decentralization is a process of
transferring power to popularly elected local governments.
Transferring power involves providing local governments
with greater political authority (e.g., convene local elections
or establish participatory processes), increased financial
resources (e.g., through transfers or greater tax authority),
and/or more administrative responsibilities.
 Fiscal decentralization, one of the forms of decentralization,
generally refers to the devolution of taxing and spending
powers from the control of central government authorities to
government authorities at subnational levels (regional,
provincial, municipal, etc). In highly decentralized system,
local governments have considerable power to mobilize
resources, through taxing authorities accompanied by strong
tax bases (Bird & Vaillancourt, 2008).
 Fiscal decentralization, one form of decentralization, involves
decision-making authority transferred from the central
government regarding expenditure, which sets, which
collects, what taxes and who under takes which expenditure
(Litvack, Ahmad and Bird, 1998; Rondinelli, 1981)
 In 2002/03 the government of Ethiopia initiated the second
phase of decentralization with a series of legal, fiscal and
administrative reforms beginning with four of the largest
regions (Amhara, Oromia, SNNP, and Tigray), which
together account for 87 percent of Ethiopia’s population. It
was during this phase that Woreda administrations and
eventually urban administration with Woreda status became
autonomous as local governments in Ethiopia (Garcia &
Rajkumar, 2008; Gebre-Egziabher, 2007). This phase of
decentralization seeks to empower communities to engage in
development interventions, improve local democratic
governance, and enhance the scope and quality of delivery of
basic services at the local level.
24. The government of Ethiopia has given due attention to
primary education when compared to the other sub-sectors. Do
you agree with this statement? If 'yes' please consult
documents, conduct interviews with officials and key experts
in the realm of education to justify your answer/s strongly.  
 Economic, political and social problems worldwide
constrained the efforts of providing basic education in many
of the least developed countries in the 1980s. Millions
remained uneducated and illiterate. Even in some industrial
countries governmental funding for education decreased
causing worsening of the quality of education.
 The EFA Dakar assessment is the largest evaluation of basic
education ever done. From the six educational goals
introduced in Dakar Framework on goal is ensuring that by
2015 all children, particularly girls, children in difficult
circumstances and those belonging to ethnic minorities, have
access to and complete free and compulsory primary
education of good quality;
 The Government of Ethiopia has adopted the goal of
ensuring universal access to and completion of basic
education and reducing the adult illiteracy rate by 2015.
During the following years all children should get an access
to primary education
 Following this, eight Millennium Development Goals have
been set by UN in 2000 as a Millennium Declaration to be
achieved by 2015 throughout the world which was a
milestone in international cooperation, inspiring
development efforts that have improved the lives of
hundreds and millions of people around the world UN
(2010). From the eight millennium development goals goal
two says ‘’Achieve universal primary education’’ (Source:
UN, 2010: 2013: 6). As the UN (2010) states these millennium
development goals and targets are interrelated and should be
seen as a whole. There fore the government of Ethiopia has
given due attention to primary education when compared to
the other sub-sectors to achieve MDG and the targets which
have been signed in the world.
25. What do you understand by the concept efficiency and
effectiveness? Relate the context of the education system
/schools/ of Ethiopia  
 The principle of effectiveness and efficiency are related but
distinct. An effective higher education system or institution
works in a manner that leads to achieving its goals and
objectives. An efficient system or institution functions
correctly, making optimal use of available resources without
duplication or waste. A higher education system that will
serve in achieving socio-economic development must be both
effective and efficient. Good governance is a key to
effectiveness and efficiency. The creation of high quality
institutions necessitates improved human resource
management, from initial efforts at staff recruitment to the
administration of research and other funding. Modern higher
education must be flexible, innovative and responsive.
26. Describe and explain the types of capital by relating to the education
system of Ethiopia.
 Financial (Economic) Capital
 Financial capital is necessary in order to get a business off the ground.
This type of capital comes from two sources: debt and equity. Debt
capital refers to borrowed funds that must be repaid at a later date,
usually with interest.
 Human Capital
 Human capital is a much less tangible concept, but its contribution to a
company's success is no less important. Human capital refers to the
skills and abilities a company's employees bring to the operation.
 Social Capital
 Social capital is an even more intangible asset, referring to the
relationships people have to each other, and the desire they have to do
things for and with others within their social networks. People tend to
do things to help and encourage those in their same social network,
creating a cycle of mutually beneficial reciprocity. In an individual's
social network, social capital is the value of the content of the
relational ties between people and not a product of the members of the
network in and of itself.
27. Education contributes to economic growth and economic
development of a given nation. Would it possible to measure this
claim. Describe and explain the methods or approaches to be used
if any.
 The creation and expansion of educational opportunities at all

levels have been actively pursued all over the world, in the belief
that education does contribute to economic growth by way of :
 creating a more productive labour force and endowing it with

increased knowledge and skills which increase production;

 providing widespread employment and income-earning
opportunities for teachers, school building and construction
workers, textbook printers, school uniform manufacturers, etc.;
 creating a class of educated persons to fill vacancies created by

departing expatriates (in the case of countries recently freed

from colonial occupation) or otherwise vacant positions in
governmental services, public corporations, private businesses
and professions; and
 providing the kind of training and education that would
promote literacy, numeracy and basic skills while
encouraging modem attitudes on the part of diverse segments
of the population.
 Education influences economic development. Education
system provides the labor force that matches the needs of
economy. This is called ‘the man power allocation function of
education’. Education is a prerequisite of economic growth.
Economic development assumes a particular set of attitudes
and values. Education is capable of generating a climate for
growth. It is wide spread belief that now that in context of
economic development education can yield both financial and
non financial returns. For a proper understanding of the
various aspects that come into play in the field of education, it
is essential to the opportunity available for different sections
of people, who bears the cost and who benefits, and the
ability to pay for education by different sections of people.
28. What do you understand by structural adjustment program?
Describe, how it was introduces, its requirements, its failure or
success in general and in the context of Ethiopia in particular
 Structural Adjustment refers to a set of
economic policies often introduced as a condition for gaining
a loan from the IMF (international monitory fund). 
 Structural adjustment policies usually involve a combination

of free-market policies such as privatization, fiscal austerity,

free trade and deregulation.
 Structural adjustment policies have been controversial with

detractors arguing the free market policies are often unsuitable

for developing economies and lead to lower economic growth
and greater inequality. Supporters of structural adjustment
(IMF and World Bank) argue that these free-market reforms
are essential for promoting a more open and efficient
economy, which ultimately help to improve living standards
and reduce relative poverty.
 A structural adjustment is set of economic reforms that a
country must adhere to in order to secure a loan from the
International Monetary Fund and/or the World Bank. Structural
adjustments are often a set of economic policies, including
reducing government spending, opening to free trade and so on.
 Structural adjustments are commonly thought of as free market

reforms, and they are made conditional on the assumption that

they will make the nation in question more competitive and
encourage economic growth.
 Structural adjustment encourages countries to become
economically self-sufficient by creating an environment that is
friendly to innovation, investment and growth. Unconditional
loans, according to this reasoning, would only initiate a cycle of
dependence, in which countries in financial trouble borrow
without fixing the systemic flaws that caused the financial
trouble in the first place. This would inevitably lead to further
borrowing down the line.
29. Total costs in education are not recommendable for diagnostic and evaluative
purposes. Do you agree or disagree? Justify your answer/s.
 Yes we agree; the cost of an educational plan or innovation is often expressed in

terms of its total cost to indicate the value of the total resources devoted to it. But for
diagnostic and evaluative purposes, unit cost is more meaningful. Unit cost is cost
per educational unit, e.g,, cost per student, cost per school, cost per teacher, etc. But
education has multiple outputs measured variously in terms of student achievement,
number of graduates passed, and so on. Hence, while estimating unit cost, due care
should be taken to avoid ambiguity. For example, cost per student may imply:
 cost per student enrolled:

 cost per student actually attending school; or

 cost per student successfully completing a given course.

 The problem of deciding on the unit cost has to be solved carefully. Choosing the

number of students may not always be the right thing to do because all costs do not
vary with the number of the students; for instance, the teachers and their salaries,
the number of square meters of building space, etc. Hence, cost per teacher or cost
per school should also be considered.
 Unit costs are likely to rise due to changes in the price level, increase in learner

population, rise in the educational standards, demand for education as well as the
pressure for raising the level of school-going age. In making long term forecasts, we
have to take note first of the increase in the number of students, teachers and schools
and secondly, of the rise in cost per unit.
30. Describe and explain the essence of PPI
 The producer price index, or PPI, is a group of indexes that

calculates and represents the average movement in selling

prices from domestic production over time. PPI is a product of
the Bureau of Labor Statistics (BLS). The PPI measures price
movements from the seller's point of view. Conversely, the 
consumer price index (CPI), measures cost changes from the
viewpoint of the consumer. In other words, this index tracks
change to the cost of production.
 There are three areas of PPI classification that use the same

pool of data from the Bureau of Labor Statistics. These three

areas are industry classification, commodity classification, and
the commodity-based final and intermediate demand (FD-ID).
 The PPI is considered an objective tool for adjusting prices in

long-term purchasing agreements.

31. Find out the first three budget priorities sectors as per the budget
allocation made by the Federal the government Ethiopia, each of its 9 National
Regional States and the two City Administrative Councils with its possible
justifications.
 As the Source: Data from MoFEC the first three budget priorities sector were
 Education
 Road Construction

Agriculture & Food Security  
 The government has continuously prioritized investments first in Education
sector, which has contributed to a rapid expansion of access to all education
levels along with a sharp increase in the number of teachers and schools. As
a result, the education system has expanded from 10 million students in
2005/06 to 25 million students in 2014/15
 For example the education sector accounts for the largest proportion of the

GoE’s spending at 24.2 per cent of total expenditure in 2015/16 reflecting the
strong commitment of the GoE to educational development. However, it
should be noted that due to linkages across sectors, spending in sectors such
as health and road construction (especially rural roads) has spillover effects
that positively affect education outcomes. For instance, healthier children are
more likely to have higher school attendance rates, while rural roads
facilitate access to education services.
Reference
 The Economics and Financing of Education (EdPM 614) ; Jeilu Oumer (PhD) , AAU,

2008 Addis Ababa.

 The Role of Education in Economic Development:

 Financing and Efficiency in Education Reference for Administration and

Policymaking MANUEL ZYMELMAN HARVARD UNIVERSITY

 Arthur Lewis, ‘Education and Economic Development’, UNESCO lECA Conference of

African States on the Development of Education in Africa, Addis Ababa. 15-25, May
1961. Final Report, Paris, 1961, pp. 71-9.
 Education policy-planning process: an applied framework Wadi D. Haddad with the

assistance of Terri Demsky Paris 1995 UNESCO: International Institute for

Educational Planning
 FEDERAL DEMOCRATIC REPUBLIC GOVERNMENT OF ETHIOPIA

EDUCATION AND TRAINING POLICY Addis Ababa April, 1994

 M. A. EDUCATION PART – II GROUP A PAPER 2 ECONOMICS OF EDUCATION

 The Education and Training Policy and its Implementation Ministry of Education

February 2002 Addis Ababa

 Economic Focus Education and Development in Ethiopia Seyoum Teffera*

Translated by Yonas Admassu

 Ethiopian Education Development Roadmap (2018-30)

 The Potential of Cohort Analysis for Vintage Analysis University of Twente Enschede

, The Netherland 1/23/2012

 Different Sample Education Materials related to the questions from the web site.
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