Economics论文模板 – How Should Developing Countries Finance Higher Education


Investing in education is both of social and economic importance in the society. State or the government does financing education in developing countries. Fiscal resources available in a country determine the rate at which education is expanded. Recently, the ability of the government to expand education has limitations from the competition of the public funds and adverse macroeconomic activities within countries (World Bank, 2005). In addition to this, financial agreements limit the potential household contributions. This has led to investing less money in the education sector and the households are no longer willing to pay in order to get educated (Zajda, 2006). Countries with rapid population growth may experience low enrolments especially in the primary schools causing reservations in developing education.

       Currently, the set arrangements in finances have caused misallocation of funds spent in the education sector. There is substantial evidence indicating that many countries in the world have prioritised on investing more funds on primary education than what is invested in higher education. The governments in these countries on the other hand ensure that they instil high subsidies on higher education at primary education’s expense (Calloids, 2007). The set up in higher education lead to yielding of better returns when one invests on specific fields although the spending of the public is not equally distributed. This causes production of many graduates in these specific fields and a shortage in those fields that lack investment.

       Concisely, many schools do not make use of the available resources efficiently. This is mainly because many developing countries use standard formulas to fund schools and this does not encourage the schools to use the resources given efficiently. The principals governing schools have little leeway in budgetary since allocations such as pay scales and staffing rules are fixed (Devesh, 2008). Often, the budget allocates less money to these inputs compared to the salaries that teachers are given. Similarly, most schools are not flexible in central adoption of norms such as the teacher’s qualifications. This is caused by the low competition among schools since the managers in these schools are accountable to only parents and the students in these schools. Therefore, the lack enough incentive to help in coming up with cost-effective ways of offering proper education (James, 2003).

       It is inefficient and inequitable to give subsidies to students with different economic and academic background. Although there is provision of free education in many countries, students coming from poor backgrounds still find it hard to enrol in schools for high education since they cannot afford to pay for things such as transport, uniforms, textbooks, and incidentals. The problem is made worse by a situation where education lacks credit market. Poorer students end up not getting somewhere to borrow an income against their future hence most of them drop out of schools (Beynon, 2007). Coincidentally, most of these students are the most talented ones hence after dropping out; the less motivated and those that lack academic preparedness take their positions in schools. This paper is an overview of options that could help in tackling the problem of funding in higher education. The discussed solutions are aimed at increasing the resources that flow towards education and improving how they are used as well as ensuring that students have better access to schools. Among the key solutions discussed, include:

  • Coming up with ways to recover higher education public cost and ensuring that government reallocates more on  the levels that have high social returns
  •  Coming up with credit market especially to help the students enrolling for higher education studies as well as ensuring that selective scholarships are available for the needy students
  • Public education management should be decentralized and more funds allocated toward expansion of the private schools as well as those schools that are supported by the community.

Reallocating Resources and Recovering Costs

       Since most developing countries offer free education, the government should ensure an increment or introduction of fees. In some countries, the students are given free-living allowances and free education. The best thing for such countries would be reducing the allowances and restricting them to those students who have low income. Secondly, the institutions in these countries should consider charging fees to the students to help in recovering the cost of offering high education (Bray, 2006). Since high education is at a high demand, the charging of fees will help to generate high revenues without a reduction in the number of students enrolling in schools.  Most countries have already realised that spending so much on secondary education brings inefficient revenues and creates social inequities. Therefore, there is need to invest the available fiscal resources in the sector that has higher returns. Generally, this means that these resources need reinvestment in high education (World Bank, 2003). This is because social payoffs in high education can be comparable with returns of the alternative investment in social infrastructure and physical capital.

       Politically, more sense is made if most of the resources are retained in the education sector. This is because the lack of popularity of the cost-recovery policies in the public. The ministry of education tend to be reluctant in accepting these policies unless there is a balance between the political cost and the prospect of getting more funds for education.  The social profitability that the education sector gets due to additional investments differs depending on the education level (Chevalier, 2004). Countries with low enrolments in primary schools especially in Sub-Saharan Africa expansion of the primary education or raising the quality of primary education would lead to high social payoff. In countries where there is no universal primary education, more profit would come from investing and expanding secondary schools.

       Generally, extending the coverage in primary education academically and geographically in a diverse population increases the unit cost and the marginal cost falls. It would therefore be efficient to make use of the extra funds in expanding primary education and allocate the rest of the funds for expansion of the post primary education. Countries where the primary education is universal such as Latin America and Asia ensure that education is of high quality (Smallwood, 2001). In these countries, the extra funds are reinvested into secondary education as well as other higher education fields.

       Moreover, an increase in higher education cost recovery would probably lead to an increase in the total education resources in the economy. The policy of expanding and investing more on higher education would enable the government to allocate more funds on types and level of education that have high social returns. More private financing will help in ensuring that the students selected are of high quality (UNESCO, 2002).  Consequently, it would help to improve the performance of students since the students the policy would ensure high financial stake for the students. In addition to this, the policy would help in improving equity through use of the extra funds in expanding low-level education. This helps in wider representation of the groups with low income (Zoepf, 2006). Conversely, selective scholarships will be utilised in protecting the student’s access to the post primary education especially for those students who are highly talented and they come from very poor families.

Selective Scholarships and Offering Loans

       The higher education sector requires a shift to more private financing by providing more loans to students and offering selective scholarships at a limited number. The loans will assist students in financing their studies against the income that they expect to get in future. This will ensure that when selecting students to be enrolled into the higher education institutions, the selection will not be limited to only those applicants who have enough enrolement funds (Sidhu, 2006). Biasness in selection of students is avoided if the government provided more scholarships for financing living expenses and tuition.

However, in the end, such a generous scheme of offering scholarship would not be sustainable. This is because there will be an increased number of students with low income enrolling in these schools and this will cause prohibitive fiscal cost. The solution to recovering the cost would be ensuring that the students loans are widely available and coupling these loans with selective scholarships (Ziderman, 2006). These selective scholarships are given depending on the academic potential and the economic need of the students. This would ensure that all students in higher education get performance incentives easing financial burden of those students that come from very poor families. Loans encourage investments in education since the students as well as their families finance their education out of an income that they hope to get in future. High returns in the sector of higher education will ensure availability of the loans hence increasing the demand for education at high levels (World Bank, 2002). In turn, the increased demand increases private resources flow into the education sector mainly through the charges on tuition.

Developing countries have a limited experience with the education loans hence establishment of effective schemes of offering loans may take some time. Initially, these countries will experience high collection costs and a substantial rate of defaulting payments. The government is in charge of providing guarantee funds to the loan programs mainly because the cost and risk of lending money to the students is too large to be absorbed by the private banks without additional interest charges (Brussels, 2010). Lately, many governments have introduced subsidized loans for the students although this has impaired the financial viability of the student’s loans in the end. In addition, it lacks efficiency compared to the direct grants given to individuals. Those countries that face problems with the collection of the loans might consider repaying the loans through the national service.

Normally, it is difficult to administer small loans to a large number of students hence the loan schemes in secondary schools are less feasible. This necessitates the use of recovery policy in conjunction with the selective scholarships (Burnett, 2010). The expense of living as well as the tuition fee is low in secondary schools as compared to that in higher education. Therefore, the government can only sustain a limited program offering scholarships to only the needier students.

Decentralized Management

       Many developing countries have a centralised management in the public schools. This form of management involves government restrictions on community operations and the operations of the private schools. The restrictions are such as control over the school fees, controlled curriculum, control over the teachers’ salaries as well as their qualifications, and the criteria of accrediting (Anderson, 2009). Restrictions on the financing and administration of public and private schools help in increasing efficiency in these schools. Efficient management is needed to control the fraudulent operators, promote unity in the nation as well as maintaining the standards in higher education. However, too much control discourages the private schools as well as those schools run by the community from offering any contribution to developments in education. The controls are eased to enable mobilization of more local and private resources to be used in the education sector.

       Decentralization ensures increased leeway to community and private schools hence improved efficiency in these schools since they start competing among themselves. Competition leads to increased educational services being offered in these schools. Consequently, the fees decreases, students, and parents can enjoy the wider availability of services hence they can choose the schools that they would want to enrol to (King, 2009). Efficiency in these schools increases the accountability of the management ensuring that available resources are well utilised. This reduces cases of corruption as well as wastage of resources.

       The policy of decentralizing the management of schools helps in relaxation in the central government. This is evident in the developing nations who have a fragile national unity and their standards on the needed curricula are rigid. Secondly, decentralization in the community, private, and local schools ensures that students and parents play a great role of choosing the type and quality of education that they desire. For the parents and students to make wise choices, they need to be aware of the available alternatives in education. The central government plays the role of providing information on these alternatives to the students and the parents (Johanson, 2004). The central government can play this role by displaying results of the common examinations for all schools of by withholding accrediting for those schools that are not complying. This does not necessitate prohibiting these schools from carrying on with their operations rather, it helps the students or the parents to make comparisons between schools and choose the best. In the higher education as well as secondary schools, providing tracer studies results across all schools helps in showing the students the types of job they ought to obtain after graduating.

Implications of the Discussed policies

       When students are charged higher tuition fees and the revenue received is not reinvested in education, student equity and selection will improve. In most of the developing countries, the students who enrol for higher education are those that have high incomes. This means that there will be more revenue if they are charged more for the tuition. There will be an increased in financial stake for the parents and the students hence more motivated and talented students will be encouraged to enrol in these schools (Lewin, 2001). To prevent the students from poor families from dropping out of schools, the government should introduce the scheme of selective scholarships. This will ensure that there is equity in these developing countries except for a few cases where the government prefer enrolling the high-income students to get more revenue.

              Conversely, introduction of student loans especially in higher education has many benefits to the students, parents as well as the higher education institutions. The loans help to mobilize an additional of resources for education at high levels by tapping the future earnings that the graduates expect to obtain. Loans improve allocation of resources by encouraging more students to enrol in those courses that have high returns (Middleton, 2009). Coupling loans allocation and selective scholarships helps to ensure equity in the selection of students since the talented students who come from poor families can compete with those who have high incomes for places in institutions of high education.  

Other Concerns

The government has utilised various skills, knowledge, intelligence and wisdom in the management of funds in the schools. This involves many resources that depict the capacity that people have and this is represented by the wealth that people have and how it is used in achieving goals in an economy. The government need to ensure that they utilise the extra revenue that they get from charging high tuition (Lewin, 2008) . This extra revenue should be utilised in similar proportions at all levels of education. The policy will help in increasing the flow of resources into the education sector but it cannot help in improving the allocation of these resources or the efficiency of using them in schools.

Great positive results are achieved if the government spends tuition revenue on low education levels such as the primary education. Firstly, the total education resources will increase since spending more on primary education helps in mobilizing supplementary resources from the private sector (Lewin, 2008). Secondly, due to the high returns at the low education levels, there will be improved resource allocation. Lastly, equity will be upholded in these countries since there will be more students enrolling in primary schools who are from the low income groups compared to those students enrolling at secondary and higher levels.

Additional resources from the local community and the local families are mobilized by decentralizing management as well as encouraging private schools and the local community. However, the most important contribution of the policy of decentralizing management is ensuring improvement in efficiency in higher education (Ogawa, 2003). This improved efficiency is achieved through an increase in competition between public and private schools as well as among public schools.

Politically, more sense is made if most of the resources are retained in the education sector. This is because the lack of popularity of the cost-recovery policies in the public. The ministry of education tend to be reluctant in accepting these policies unless there is a balance between the political cost and the prospect of getting more funds for education.  The social profitability that the education sector gets due to additional investments differs depending on the education level (Chevalier, 2004). Countries with low enrolments in primary schools especially in Sub-Saharan Africa expansion of the primary education or raising the quality of primary education would lead to high social payoff. In countries where there is no universal primary education, more profit would come from investing and expanding secondary schools.

Ways of Implementing the Policies by the Government

       In the end or within a short time, the discussed policies can help to bring many changes in higher education institutions. However, implementation of these policies may take time especially in the developing countries. This is mainly because first, the policies are against the tradition that people are used to which involves free education. Secondly, some policies tend to conflict with the political regime of some countries for instance in the socialists country, private sector encouragement is not accepted (Oxfam International, 2002). Lastly, there may be limitations within the institutions making it difficult to implement such policies as the launching of the selective loans scheme.

To avoid the above-discussed problems and ensure an efficient implementation of the policies, implementation of the policies can take place in phases starting with those reforms that have low political and administrative costs. Every country has a different way of timing of the steps needed in implementation of policies. For instance, it may be impossible to recover the student’s loans for reasons such as repetition, temporary unemployment, default, dropout, and unexpected low incomes (Jocham, 2003). However, although the recovery process may have many problems, the policies set have helped to improve the situation in higher education where students have not been contributing anything to the public for their education. Instead of remaining in the current situation in the developing countries, the government in these countries should begin to carry out reforms to finance higher education.

 If the gains from equity and efficiency are sustainable, overcoming the political opposition will be easier. Implementation of the package on the other hand is done depending on the conditions of one’s country. However, the government need to do more analysis on designing the above policies to ensure that they are implemented appropriately (ActionAid, 2003). This is achieved if the government asks such questions as the sources of inefficiency in the system being used currently and the equitability of the financial arrangements in use.

A critique of the discussed solutions

       Globally, education helps in promoting developments both socially and economically. The expenses set aside for education help in developing the budgets in the developing countries. However, most countries have no reputable education contributions to their economy. This is because first, the government has not invested well in education. Second, resources in schools are misallocated at all levels of education. Third, available resources are not well utilised in schools and lastly, educational costs are not equally distributed among people of different incomes (Beynon, 2007). Lately, most countries in the world have educational systems that consist of substantial subsidies assigned to each student and these subsidies amount to almost the free education.

       In the university level particularly, there are administrative and financial arrangements that restrict operations in the community and private schools limiting the availability of credit or loans for the students. Most people argue that the current system of education benefits the society more than the benefit it brings to individuals. In the education system, the curriculum is designed in a way that instils civic duty as well as spreading social morals, languages, and ideologies (Buchert, 2002). Numeracy and literacy taught in schools helps in improving the economic and social transactions such as tax collection that help to finance the public. Therefore, the benefits of implementing the discussed policies in the education system will benefit both the public and the individuals.

       To those people who cannot afford primary education, literacy and numeracy would be of much help to them. These are some of the reasons the government is ensuring that they subsidize the education services. This gives an opportunity to people of all social classes an opportunity to enrol for high education. The subsidies have led to low cost of private education hence it may not be necessary for the students to secure loans for their education programs. It is valid for people to base their arguments on externality and equity in higher education institutions since this applies much in low level of education (Bray, 2000). The economists may argue that there are market failures but in the education sector, this justifies the failure of the government to play its role. However, the government nature and scope can undergo change to help in improving equity and efficiency.

       Study shows that there has been underinvestment in education in the developing countries. A comparison made with the previous years indicates that public expenditure on higher education has declined over time. The last documentation of the expenditure indicated that the rate was lower than the growth of national income. However, the school-age population in the developing countries remains high. Data on private flow of resources to education are very scarce although the available statistics show there has been a decline in the private spending especially in the developing countries (Saavedra, 2002). For instance, schools in African countries there have been a fall in secondary and primary school private share. Consistently, these countries consider education to be the responsibility of the state hence in such cases; the government limits the private schools operation.

       Similarly, the allocation of resources to schools in the developing countries has not been consistent. The government seem to prioritize on investing the national resources into other sectors and not education. If more resources were devoted to investing in education, there would be incredible results (Dukeman, 2004). Education may have considerably expanded in the last century but this expansion is not enough to drive the rate of the social returns. More benefits that are social are achieved if there would be added investment in the sector of education. Development in education in the developing countries is low especially due to the rapid population growth in these countries that lead to overexploitation of resources.

       Government underinvestment in education is reflected by the shortages of securing new places in schools as well as in under spending on the recurrent expenditures in schools. Many schools face the problem of high recurrent costs mainly because of the inadequate funding of the projects in these schools that causes inefficiency in maintenance and operation of these projects. Ninety to ninety five percent of the total resources given to education are used for the operations in these schools (Doughtery, 2013). Some countries can finance the operations hence the government does not have to borrow extra funds. An alternative to the borrowing of funds would be running schools inefficiently with no qualified teachers, equipments or educational materials.

Causes of Inefficiency in Schools

       Research carried out globally indicates that the resources available for high educations are lack proper utilisation. This is mainly because of the lack of prioritizing within these schools as well as poor management of funds. Most of the funds meant for the educational purposes are reallocated into other irrelevant sectors within the educational level. Another cause of inefficiency is cases when the students with low income who have a better learning potential cannot secure any place in the institutions of high education. They fail to secure these places either because of economic reasons or the inability to compete with those students who come from better backgrounds (Hurschman, 2002). The present way of giving finances to schools by the government have contributed much to these inefficiencies. For instance, collection and distribution of funds in most public schools is done in a centralized way. This involves getting revenues from tax sources and forwarding them to the education ministry. These funds are the ones that are allocated to the universities. In such a system, parents, students, and administrators play a minimal role in determining how the funds are allocated (Adea-Mensah, 2000). This occurs indirectly through the schools that they choose to attend to or the ones that parents choose to enrol their children.


       From the above discussion, it is evident that the government needs to come up with ways of implementing the discussed policies to ensure smooth running of activities in institutions of higher learning. A successful economy is one that channels most of its available resources into education. The government should serve as the main body in charge of allocating more funds to higher learning sector and this involves the secondaries and universities (Bray, 2006). A community may have people of different backgrounds therefore; it is the work of the government to prioritize in assisting those students with poor background ensuring that they secure places in the institutions.

In addition to this, the government could help these students to pay for their tuition fees by giving them loans to prevent them from dropping out of schools before completing their education. Other than loans, the government should ensure that the management in schools of higher education is efficient. An efficient management is one that ensures that the allocated funds are well utilised to benefit the students. With a good management, cases of misuse of funds are reduced hence resources are used efficiently. Selective scholarships are also important in assisting the students to complete their education (Saavedra, 2002). The government may opt to give scholarships to those students who have a high potential of excelling but they come from poor backgrounds. The scholarships are aimed at giving a chance to these students to join institutions of higher education to gain more knowledge and to nurture their talents.

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