2 1666 DEVELOPMENT BRIEF Number 22 The World Bank October 1993 E a rlI y ed u cat i o n p u s h ments in other developing regions. In 1989 the share in Africa, 4.1%, pays off fo r East As i a was higher than the East Asian share, 3.7%, which barely exceeded An early education push helped the region create a the average share for all developing economies, 3.6%. broad, technically inclined human capital base well- What East Asia has done differ- suited to rapid economic development ently is to allocate a consistently higher share of public expenditure A sia's education strategy was Policy choices for education to primary schooling to focus spending on the Higher shares of national income than elsewhere. Korea and Vene- lower grades: first by devoted to education cannot fully zuela provide an extreme example. providing universal primary educa- explain the larger accumulation of In 1985 Venezuela allocated 43% of tion, later by increasing the avail- human capital in the HPAEs. In its education budget to higher edu- ability of secondary education. both 1960 and 1989, public expendi- cation; by contrast, in the same year Rapid demographic transitions fa- ture on education as a percentage of Korea allocated only 10% of its bud- cilitated these efforts by slowing the GNP was not much higher in East get to higher education. Public ex- growth in the number of school-age Asia than elsewhere. For the past 30 penditure on education as a children and in some cases causing years, the governments of East Asia percentage of GNP was actually an absolute decline. Declining fertil- markedly increased the share of na- higher in Venezuela (4.3) than in ity and rapid economic growth tional output they invested in for- Korea (3.0). After the share going to meant that, even when education mal education. But so did govern- higher education is subtracted, investment as a share of GDP re- mained constant, more resources were available per child in East Asian Where education budgets went in 1985 regions than in other developing re- _ _ gions. And success in education was Public Public Percentage Percentage aided by high income growth and expenditure expenditure of education of education more equal higcome distributiond on educationi on basic budget budget more equal income distribution.* as a education allocated allocated Limited public funding of post- percentage as a percentage to hzigher to basic secondary education focused on Economy of GNP of GNP education education technical skills, and some of East Asia's eight high-performing Hong Kong 2.8 1.9 25.1 69.3 Indonesiaa 2.3 2.0 9.0 89.0 economies, or HPAEs-Hong Korea, Republic of 3.0 2.5 10.3 83.9 Kong, Indonesia, Japan, Malaysia, Malaysia 7.9 5.9 14.6 74.9 the Republic of Korea, Singapore, Singapore 5.0 3.2 30.7 64.6 Taiwan (China), and Thailand- Thailand 3.2 2.6 12.0 81.3 imported educational services on a large scale, particularly for disci- V. 31.0 plines requiring high skills. a. Other data sources indicate that Indonesia's public expenditure on education as a share The allocation of public resources of GDP was 3.3% in 1984-85 and 4.3% in 1985-86; the share of the education budget allo- to basic education was the major cated to basic education was 81% in 1984-85 and 80% in 1985-86. determining factor in East Asia's Note: Not all row percentages add to 100 since three other categories-pre-primary, other successful educational strategies types, and not distributed-are not included. (see the table). Source: Column 1, United Nations Development Programme, Human Development Report (see the table). 1991 (New York: Oxford University Press, 1991); columns 2 and 3, United Nations Educa- Formoredetails,seeWorldBank Th,EastAsianMiracle(New tional, Scientific, and Cultural Organization, Statistical Yearbook (Paris, 1989). York: Oxford University Press, 1993), chapter 5_ FILE COPY however, public spending on basic r education as a percentage of GNP Education and labor markets was much higher in Korea (2.5) East Asia's high and growing invest- HPAE governments have generally than in Venezuela (1.3). ments in human capital contributed been less vulnerable and less respon- The share of public funds allo- both to accumulation, since human sive than other developing-economy cated to tertiary education in East capital is an essential input to eco- governments to organized labor's de- Asia has tended to be low, averag- nomic growth, and to productivity- mands to legislate a minimum wage. ing roughly 15% during the past based catching up, by permitting Rather, they have focused their ef- better mastery of technology. Indeed, forts on generating jobs, effectively three decades. In Latin America the between 60% and 90% of the HPAEs' boosting the demand for workers. As share has been roughly 24%. output growth derives from accumu- a result, employment levels have Because of the focus on basic lation of physical and human capital. risen first, followed by market- and education, in East Asia public Accumulation and catching up would productivity-driven increases in funds for schooling are more likely not have been possible, however, wage levels. Because wages-or at without flexible labor markets to least wage rate increases-have been make optimal use of the well-edu- downwardly flexible in response to who otherwise might not stay in cated workforce. changes in the demand for labor, ad- school. Government roles in labor markets justment to macroeconomic shocks By giving priority to expanding in the successful Asian economies has generally been quicker and less the primary and secondary bases of contrast sharply with the situation in painful in East Asia than in other de- the educational pyramid, East most other developing economies. veloping regions. Asian governments have stimu- ------ lated the demand for higher educa- tion while relying to a large extent other developing regions-and re- prefer to do their own training, on the private sector to satisfy that cently, better than children from partly because many skills are firm- demand. In all developing regions high-income economies. In one such specific. the probability of going to univer- test of performance conducted in 20 Some government efforts to pro- sity is markedly higher for second- diverse countries, Japanese students mote training have gone awry. Ac- ary school graduates from high- ranked first, and students from cording to one study, Korea's 1974 income families than for those from Hong Kong were in the top half of Special Law for Vocational Train- low-income families. Typically, in the distribution. ing, which required firms to pro- low- and middle-income econo- vide six months of training in mies, public subsidies for univer- Vocational training approved schemes, discouraged sity education are not related to Human resources and the training firm-level training; firms consid- need, implying that they benefit to upgrade them have been impor- ered the period too long and opted families with relatively high tant to the HPAEs' successful export to pay a fine instead. But Singapore incomes. drives, despite the high labor inten- succeeded by using training to pro- sity of their manufactured exports. mote the information technology Making the grade High-level skills are essential for a sector. Singapore has achieved The high performance of Asian range of manufacturing-related ac- world leadership in information- children on cognitive skills tests (of tivities. Moreover, adaptive innova- related services through a concerted algebra, arithmetic, geometry, and tions on the shop floor, which are program that involved technical measurement) reveals that the fo- responsible for a major share of pro- education institutions, training cus on primary education has paid ductivity growth in manufacturing, subsidies to schools and office off. In the relatively few interna- demand both higher- and lower- workers, computerization of the tional comparisons available from level skills. But vocational training civil service, and establishment of such tests, East Asian children per- is rarely cost-efficient when pro- TradeNet, a global information form better than children from vided in the school systems. Firms network. 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