Study guide #31. Educationa. Gross Enrollment Ratio: The country divides the number of children who are of school enrollment age by the number of individuals who are actually enrolled in schools.b. Net enrollment ratio: enrollment of the official age-group for a given level of education. Ex. The share of children of primary school age that are enrolled in primary school. i. Always less than 100%c. Life Expectancy in school: a measure of how many years of education the average citizen of a country is expected to receive in their lifetime. d. Completion and Drop out rates. Various measures of education Benefits of education both at individual/private and social/public levels- Returns to education (both private and social) View education as an investment that yields a rate of return◦ Benefits: earning advantage of a given level of education over some other (lower, control) level◦ Costs:  Direct costs: tuition, living expenses, materials  Indirect or opportunity costs: foregone earnings while in school (calculated as wages of control group) Private Rates of return accumulate to individual and have wider benefits or externalities to a society as a whole.Positive Externalities: More Rapid Growth, More Productivity and healthy workforce, greater politician participation, and greater innovation. These externalities justify government investment on educationNegative externalities for government: direct cost of investment or subsidy, and forgone labor. o Social and private returns are highest at lower levels of development. o Social and private returns are higher at lower levels of educationEducation level and unemployment rate/wage (graph) Education and gender (the importance of female education)• Private returns to investment in girl’s education (most likely) higher than for boys. • Women’s education associated with increased entry into the labor force. • Education of mother associated with a lower infant mortality rate and positively related to the child’s health• Education of women negatively associated with fertility: more education = less children.• Lower incidence of HIV/AIDS• Indirect effects: delayed marriage, economic independence. 2. Foreign aidDefinition/types of foreign aid:- Developmental Aido Transfer of finance, commodities etc. - Humanitarian Aido Disaster relief assistance- Military Assistance- Food Aido Offered to countries facing food shortages. Three arguments regarding the effectiveness of foreign aid on growth (positive, negative, and conditional) - understanding each side- Positive: o Foreign Aids supplement local savingso Enhances investment which makes possible expansion in productive capacityo It furnishes foreign exchange for essential o imports such as machinery fuel and food. o Aid builds large construction projectso Aid could promote economic growth by o acting as a financial incentive for recipient governments to engage in political- costly, but growth-enhancing economic reform.  For example, classical modernization theory- Negative- William Easterlyo Recipient governments misspend their foreign aid.o aid can corrode governance and competitiveness o aid decreases savings of recipient governmento can mirror resource curseo aid may have no effect on growth rates. o Bottom up approach based on accountability and learningo Aid can support and encourage corruptiono Making aid more effective is the solution- not increasing aid levels/ - Conditionalo Aid has no effect on average (very limited effect)o Aid increases GDP/capita growth only in countries with good economicpolicieso “Good” economic policies: fiscal, monetary and trade policy.o Based on Olson’s Stationary Bandits argument Long tenured governments are more likely to use foreign aid effectively. 3. World Bank and IMFWhat does the IMF do? - International Monetary Fund: maintains international monetary cooperation among its members (supervising monetary cooperation at international level today). - Mission: fiscal stability of international monetary system.- Surveillance- scrutinizes economic policies of members to identify weaknesses that are/could lead to financial instability - Technical Assistance - practical guiding and training to help mainly low and middle income countries manage their economies- Articles of Agreement of the IMFo i) Promote international monetary cooperation o ii) Expansion and balanced growth of international tradeo iii) Promote exchange rate stabilityo iv) Help establish multilateral system of payments and eliminate foreignexchange restrictionso v) Make resources of the Fund available to memberso vi) Shorten the duration and lessen the degree of disequilibrium in international balances of paymentsoThe role of IBRD and IDAIBRD: International Bank for Reconstruction and Development- founded in 1944 at Bretton Woods Conferenceo to finance reconstruction of countries affected by WWIIo help with development of impoverished nationso Lends to countries with relatively high per capita incomes o poverty reduction in middle income or credit worthy poor countieso Money is used for:o development projects (highways, schools)o programs to help governments change the way they manage their economieso Provides technical assistance in projectsIDA: International Development Association- Established in 1960 to assist the poorest developing countireso Lends to countries with annual per capita incomes of about $800 or less.Comparing the IMF and World BankDifferences: – IMF is aimed at stability of international financial system (macro)– WB aimed at long-term development and poverty reduction. – IDA emphasizes concessional loans and grants- more focused on developing countries.Similarities: – Bretton Woods institutions– Weighted voting privileges economically powerful members– IBRD and IMF emphasize loans– Both are key players in international development– Institutionalized cooperation andcoordination– Conditionality World Bank Criticisms• Bias- political tool of major donors (US and western countries)• Opaque and secretive: little input from recipients• Disregard for human and environmental costs• Conditionality- failed to produce growth and hurt the poor the most4. TradeDefinition of comparative advantage Comparative advantage is the idea that countries should specialize in their economic production based on the opportunity costs of producing various goods. It is NOT about producing