EJSS 77 The effect of income on educational expenditures.pdf

The Explorer Islamabad: Journal of Social Sciences ISSN: 2411-0132(E), 2411-5487(P) Vol-1, Issue (10):360-371 www.theexplorerpak.org

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THE EFFECT OF INCOME ON EDUCATIONAL EXPENDITURES: THE CASE OF PAKISTAN Samina Nazli

Research Economist, Pakistan Institute of Development Economics, Islamabad Corresponding Author: Samina Nazli PIDE, University, Islamabad [email protected] Abstract: The paper examines the relationship between income and education expenditure in Pakistan. Low income acts

as a m a j o r hindrance for parents from spending on their children’s education. Naturally they would prefer them to work and earn an income instead of spending on them. Thus, the overall educational attainment level in Pakistan is low as compared to other countries in the region. This paper suggests a possible way out by raising economic growth rates so that employment and income increases, encouraging parents to send their children to school.

Income, Education expenditure

If you want to make a plan for one year, cultivate rice. If you want to make a plan for 10 years, plant a tree and if you want to make a plan for 100 years, establish a school. (Attributed to Aristotle) “If people want us to go to school instead of work, they must give us the money to do so and make schools better. Then we would stop stitching. Who wants to injure their fingers?” (An out of school working girl in Pakistan)

INTRODUCTION The Universal Declaration of Human Rights (1948) Article 26 states explicitly that ‘everyone has the right to education. Education shall be free, at least in the elementary and fundamental stages. Elementary

education shall be compulsory’11. More recently in the 18th Amendment (Article 25-A) passed by the Parliament mentions that the state shall provide free and compulsory education to all children of the age of five to sixteen years in such manner as may be determined by law. In the educational pyramid, elementary education is the foundation on which secondary and tertiary education rests. It is also a well-known fact that investment in education

promotes the process of economic development.

The education literature also reveals that the private and social rates of return at the primary or elementary level are relatively greater than at the secondary and tertiary levels (Hamdani 1977; Haque

1 Adopted and proclaimed by General Assembly resolution

217A(iii) of 10 December 1948 (UN)

1977; Shabbir 1991; Psacharopoulos 1981; Anyanwu 1996; Anyanwu 1998; Patrinos and Psacharapoulos 2002; Psacharapoulos 1985; Psacharapoulos 1994). Pakistan’s lack of achievement in the education sector is notable. Each succeeding census has seen the number of illiterates increasing. In 1951, 18.64 million people were illiterate; in 1961, the number of illiterates had risen to 22.08 million; in 1972 there were 33.59 million illiterates. In the 1981 Population Census the number had increased to 42.69 million and in the last census carried out in 1998 the illiterate proportion had crossed 50 million people (SPARC 2006). If one looks at the Gender Parity Index (GPI) Pakistan ranks among the lowest in the world – a GPI of 0.73. In the South Asian region, India and Nepal have almost attained gender parity (.96 and .92 respectively). The other countries in the region, Bangladesh, the Maldives and Sri Lanka had already achieved gender parity by 1998 (SPARC 2006). With respect to public expenditure on education, the situation is equally bad. Public expenditure on education in 1996-97 was 2.62% of

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GDP, 2.34% in 1997-98; 1.7% in 1999-2000; 1.6% in 2000-01; 1.9% in 2001-02; 1.7% in 2002-03; a slight increase to 2.1% in 2003-04; and 2.2% in 2004-05 followed by a marginal decline to 2.1% in 2005-06 (SPARC 2006). Currently, there are more than one million children who are not attending primary schools (SPARC 2006). Overall, the performance of the education sector in the 1990s has been weak, particularly between 1996 and 1999. The primary gross enrolment ratio which was 65

percent for Pakistan in 1991 increased by only 4 percent to 69 percent in 1998-99 (Table 1) (SPARC 2006). A similar picture is reflected in the case of the Punjab, the most populous province of the country – the gross enrolment ratio barely increasing from 73 percent in 1995-96 to 76 percent in 1998-99. Sindh has seen a substantial declined in this ratio: from 70 percent to 56 percent. The primary gross enrolment ratio for the Khyber Pakhtunkhwa (KPK) remained constant.

Table. 1: Primary Gross Enrolment Rate (%)

Area Period

1991 1995-96 1996-97 1998-99

Pakistan Punjab Sindh NWFP Balochistan

65 - - - -

71 73 70 66 63

70 73 64 69 58

69 76 56 67 58

Source: SPARC (2006). The theme of this paper elaborates on the relationship between income and expenditure on education. Low income levels constrain parents from sending their children to school. As a consequence, the level of educational attainment is low compared with other countries in the South Asian region and those at similar levels of development. A number of research studies based on surveys carried out from time to time have been published that deal with the determinants of school enrolment in Pakistan. These surveys vary in scope and methodology as well as data coverage. However, some common results can be inferred from the analysis carried out by the authors. These studies are (Chishti and Lodhi 1988; Hamid 1993; Sathar and Lloyd 1994; Burney and Irfan 1991; Burney and Irfan 1995; and Bainbridge, et al. 2005; Balley and Lockner 2007; Blanden and Gregg 2004; Brown and Park 2002; Deolalikar 1997). These studies reveal that household income and education of the head of the household has an important role to play in determining if children attend primary school or not. Other important determinants include travel time, the cost of textbooks and gender; boys are more likely to be sent to school than girls. Parental indifference towards educating their children, an educational system that is uninspiring and does not encourage the development of original ideas and the poor quality of instruction all serve as deterrents. Further, supply-side determinants such as the physical

condition of schools can also be a hindrance to school going children. For example, a recent survey carried out by the Education Research Network Organization revealed the shabby state of the schools in the Mianwali district of the Punjab. 1686 schools for both boys and girls were covered in the survey. The survey showed that, out of the total, 600 schools were housed in rental buildings; 133 schools for boys and 156 schools for girls were functioning in dwellings made of mud and 143 schools were in need of immediate repairs. Another 20 school buildings could collapse at any moment. There was no provision for drinking water in 920 schools. 815 schools had no electricity. Toilet facilities were not available in 955 schools. 1339 schools lacked recreation facilities while no provision existed for first aid facilities in 1461 schools and 724 schools had no boundary wall. In the Dadu district of Sindh, it was discovered that influential people were using primary school buildings for cattle pens and guest houses. Furthermore, in a survey carried out by the National Commission on Human Development, out of the total 2500 primary boys and girls schools; 400 are ghost schools, some 74,000 children are without schools to go to and the teachers employed are not attending school but paying bribes to officials to receive their monthly pay.

In another report carried by Dawn, a leading English language newspaper of the country, of 112 primary schools in Murree Town, in the province of the

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Punjab a single teacher taught all subjects in all five classes, which makes the standard and quality of education a moot point. Other drawbacks included the lack of boundary walls and washrooms as well as the bad state of disrepair of school buildings. Despite these supply-side determinants, we feel that income is the major reason which is responsible for the low levels of enrolment at the primary level, as a survey of the literature reveals that one of the principal factors that affect the private demand for education is income. In a survey of a 1000 families carried out in India, 90 percent of the parents responded that they wanted their children to attend school if it was affordable for them (Ul Haq and Haq 1998). In a survey carried out in the sports goods industry of Pakistan, it was found that over 72 percent of children could not attend school as it was beyond the economic means of their parents. So, instead of going to school they worked as child labour in the sports goods industry (Marcus and Husselbee 1997). Children of well-off workers in India had a very high attendance at school (Ul Haq and Haq 1998). The level of income determines not only who can afford schooling at the primary level but also who can continue on to secondary as well as higher schooling. The lower the income the more difficult it is for poor families to cover the educational expenses of their children, for example tuition fees. But this is not the only barrier. ‘Free education’ may not in actuality be free as it can have a cost. These costs include earnings foregone and expenditure on clothes, transportation, books, materials, possibly, even the cost of meals. To further complicate the picture, poorer households tend to have larger families with more children of school-going age. Research undertaken by Meerman (1979) for Malaysia revealed that income plays a significant role in influencing the effective demand for education at all levels of the educational system. This study further reveals the interesting fact that the poorer families in Malaysia spent

18% of their yearly income on such items as clothes, travel, books, etc on their children. Those in the higher income group spent less than 6% of their total yearly income on items such as clothes etc on their children. Furthermore, those families that had been classified “poorest” had 2.75 children in contrast to the rich or top income group families who had only 1.25 children per family. Similar results were found for Nepal (Jemison and Lockheed 1987) and for India

(Joshi and Rao 1964). Children from low income families in developing countries including Pakistan find it difficult to go to school. For Pakistan they say that in the first part of the 1990s 86% of children from rich households were in school as compared with 37% of children from families who had low incomes (Hillman and Jenkner 2004).The reasons why children do not attend school are two-fold: the first relates to incentives that encourage children to work and secondly constraints that force children to work (Betcherman, et al. 2005). Simply put, incentives can be considered to be the prime cause of children working when the economic benefits of such work are deemed to be greater than the benefits to be had from attending school. So, if education proves to be expensive then the rational economic decision of poor parents is not to send their children to school. Also, children do other non-paid work at home by helping to harvest crops in rural areas. If sent to school, the opportunity costs to households would be high. The second reason dealing with why children are compelled to work rather than go to school relates to low incomes of families. A convincing negative relationship exists between the economic activity of children and per capita national incomes. The higher the national income, the higher is the per capita income (Dehejia and Gatti 2002; Gunnerson, et al. 2005; Edmonds and Pavenik 2005). Section II of the paper discusses the various government policies on education. Section III examines the data and methodology followed in the paper. Section IV discusses the results of the analysis and Section V presents the concluding comments and suggests some implications for policy. II. Government Policies on Education Pakistan in its 68 years of independence has formulated a number of reports/policies dealing with education. These are presented in Table 2 (Bengali 1999) below:

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Table. 2: Educational Reports and Policies 1947-2010

S.No. Policy Statement Years 1, 2. 3. 4. 5. 6. 7.

All Pakistan Education Conference Education Conference National Commission on Education Educational Policy with Nationalization National Educational Policy Education Policy Education Policy

1947 1951 1959 1972 1979 1992

1988-2010 Source: (Bengali 1999). These reports/policies have a common theme running through them. One of these is that the educational system of the country should reflect the ideological underpinnings that made Pakistan an independent country. An issue that is highlighted focuses on the development of the individual, the assumption being that the greater and more widespread the level of education the higher would be the rate of economic progress. The importance of primary and vocational education is also stressed along with the provision of quality education at all levels in these policies. In particular, the Education Policy of 1998-2010 of the Government of Pakistan (GOP) sets some specific targets for raising the gross enrolment ratio at the primary level to 105% by 2010 (Pakistan 1998). Furthermore, a Compulsory Primary Act is to be introduced in a step by step manner. The provision of the act with respect to primary education are expected to be enforced as well. Other aspects of the policy envision a fuller utilization of the existing physical infrastructure to operate on a double-shift basis Pakistan 1998). In addition, it is also planned to impose the delivery of primary education by revising and upgrading the syllabus, raising the quality of the primary school teachers, and bringing about a qualitative change in the examination system (Pakistan 1998). The National Education Policy of 2009 highlighted two major areas to be tackled achieving universal and free primary education by 2015 and secondly, all children of both sexes to be enrolled in school (Pakistan 2009). Although these policies reflect commitment to promoting education and literacy within the country, the actual experience has been far from satisfactory. This can be seen from the allocations, given for

education and the actual expenditures incurred in the various five year plans. Table 3 (Government of Pakistan, Economic Survey, Finance Division, Economic Advisors Wing (1994-95) p.106) presents the allocations and expenditure on education in the country. The First (1955-1960) and Second (1960-1965) Five Year Plans laid down the objective of universalizing primary education by 1975. The Third Plan (1965-7) extended this target beyond 1980. The Eighth Five Year Plan (1993-98) further shifted the target date for achieving universal primary education to the year 2002. Needless to say this target has not been achieved. Table 3 also shows education expenditure as a percentage of total plan expenditure and as a percentage of GNP. In all the plan periods (except for the Eighth Plan) the actual expenditure on education varied between 4% and 8% of the actual plan allocations (Column 4 of Table 3). Only in the Eighth Plan period did actual expenditure on education reach 14% of the allocation made for the purpose. With regard to expenditure of education as a percentage of GNP it varied between a low of 0.88% to 2.33%, an amount witch is much less with other countries that have low human development as categorized by the UNDP, in its Human Development Report, 2001: for example Nepal, 3.0%, Togo 4.5%, Bhutan 4.1%, Yemen, 7.0%, Mauritania, 5.1%, Gambia 4.9%, Malawi, 5.4%, Ethiopia, 4%, Burkina Faso, 3.6% and Burundi, 4.0% (UNDP 2001). In a follow up report dealing with South and West Asia (UNDP 2009; UNESCO 2010), India’s public expenditure on education in 3.3%, Iran 5.6%, Sri Lanka 5.4%, Maldives 8.3%, Nepal 3.8%, Pakistan 2.8%, Bangladesh spends only 2.4%.

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Table.3: Expenditure on Education

Five Year Plan Total Plan Expenditure (000

Rs)

Expenditure on Education (000

Rs)

Education Expenditure as % of Total Plan

Expenditure

Education Expenditure as %

of GNP

1st Plan (1955-60)

2nd Plan (1960-65)

3rd Plan (1965-70)

4th Plan (1970-75)

5th Plan (1978-83)

6th Plan (1983-88)

7th Plan (1988-93)

8th Plan (1993-95)

4,363 10,606 13,204 70,500

226,000 250,000 350,000 483,320

296 527 677

3,665 10,383 19,810 22,680 69,031

6.78 4.97 5.13 5.20 4.60 7.94 6.48

12.28

0.88 1.65 1.38 1.53 1.50 2.10 2.16 2.33

Source: Government of Pakistan, Economic Survey, Finance Division, Economic Advisors Wing (1994- 95) III. DATA AND METHODOLOGY The data used in this study is from the Pakistan Social and Living Standards Measurement Survey (PSLM) of 2013-14. The survey provides information about households; basic education, health, water supply and sanitation, and population welfare. In this paper we have focused only on the education component of the survey. A total number of 17,989 households were covered in a sample survey involving a two -stage stratified sample design. The sample design covers households at the national and provincial levels as well as giving a breakdown by urban and rural areas. The main objective of this paper is to find out the relationship between income and expenditure on education at the national and provincial levels as well as by urban- rural breakdown. The standard Ordinary Least Squares (OLS) estimation techniques have been used. Two variables, that is, household annual educational expenditure (HAEE) is the dependent variable, annual income of the household (HAI) as the independent variable. Income here is defined as the amount of money or its equivalent received during a period of time in exchange for labor or services from sale of goods or property, or as profit from financial investments. Further, education in Pakistan is divided into five stages or levels: primary level (grades one through five), middle level (grades six through eight), higher level grades (nine and ten) leading to the higher secondary school certificate and university programmes leading to graduate and advanced degrees.

RESULTS Empirical Evidence from Pakistan The descriptive statistics presented in Table 4 show that the household annual income is Rs. 106685.67 with 137866.01 as the standard deviation whereas total annual expenditure on education is Rs. 75151.37 with 15819.10 as standard deviation. In Pakistan, on average, people spend around 4.83 percent of their income on education from their own resources. Taking a look at the urban/rural breakdown the household annual income for the urban areas is Rs. 147716.59 with 185017.14 as the standard deviation where total annual expenditure on education is Rs. 21519.42 with 25629.78 as standard deviation. It means that, on average, people spend 6.06% of their income on education. In the rural area, the total annual income is Rs. 102,034.77 with 93799.48 as the standard deviation where total expenditure on education is Rs. 4238.62 with 9958.94 as standard deviation. In the rural area, on average people spend 3.26% of their income on education while the government is spending around about 2 percent of GNP on education (Pakistan 2007-08). Province-wise a similar picture emerges. In the Punjab, the major province in population terms, people spend 5.39 % of their income on education. At the urban level, the expenditure is 6.60% on education. For the rural area the overall figure is 3.85% of income that is spent on education. In Sindh the figure is 6.38%. For urban areas it is 6.90% and for rural 5.90% respectively. In the Khyber Pakhtunkhwa, the amount spent on education overall is 4.21% with 5.82% spent in the

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urban area and 1.70 % in the rural area. Balochistan, the fourth and the largest province and the most

backward has not been included in our analysis because the data collected there is not reliable.

Table 4 DESCRIPTIVE STATISTICS

Pakistan, by Province and by Urban Rural Breakdown Household annual income (HAI) and Household annual expenditure on education

(HAEE)

Mean

Standard Deviation

Min

Max

N

Pakistan

HAI 106685.67 137866.01 200 4500000 14680 HAEE 5151.37 15819.10 .00 496000.00 14680 Urban HAI 147716.59 185017.14 1000 4500000 5928 HAEE 8956.66 22465.30 .00 496000.00 5928 Rural

HAI 78894.16 82370.98 200 2684600 8752 HAEE 2573.94 7841.25 .00 199800.00 8752 Punjab

HAI 108381.09 148340.91 480 3014000 6263 HAEE 5843.20 17607.43 .00 496000.00 6263 Urban HAI 153304.16 195745.01 1000 3014000 2620 HAEE 10108.71 25068.62 .00 496000.00 2620 Rural

HAI 76072.98 88236.73 480 2684600 3643 TAEE 2775.50 7657.03 .00 199800.00 3643 Sindh

HAI 100404.59 132745.50 300 4200000 2702 HAEE 6404.67 17271.21 .00 411000.00 2702 Urban HAI 136302.28 187311.04 3000 4200000 957

HAEE 9412.0 4 23113.16 .00 411000.00 957 Rural

HAI 80717.44 83446.69 300 966000 1745 HAEE 4755.36 12706.53 .00 193460.00 1745 KPK

HAI 109431.79 142602.71 200 4500000 3718 HAEE 4610.22 14889.54 .00 288000.00 3718 Urban

HAI 152016.27 192231.07 4000 4500000 1634 HAEE 8845.98 21468,59 .00 288000.00 1634 Rural

HAI 76042.61 69137.75 200 1298600 2084 HAEE 1289.09 3028.12 .00 44500.00 2084

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Estimated from Pakistan Social and Living Standards Measurement Survey (PSLM 2007-08) by the author. V.2 Analysis of Regression Results Table 5 is based on the author’s calculation from the Pakistan Social and Living Measurements Survey (PSLM) 2013-14 and presents the regression results of our analysis at the national level as well as for the four provinces. These results strongly support our hypothesis. The coefficient for Total

Pakistan is highly significant showing that a strong relationship exists between income and education expenditure. If the income of the person increases by Rupee 1, then he will spend 42 paisas on education. A similar situation can be observed from the results of the four provinces. All the coefficients are highly significant showing that additional increases in income will be spent on education.

Table. 5: Regression Results (OLS Estimation) Pakistan, by

Province and by Urban Rural Breakdown t- values are given in parentheses. Table 6 is taken from the World Bank Sind Economic Report as mentioned in The News, Tuesday November 10, 2009. It shows the percentage change in the level of education by area in the inter-censal period 1981-1998. The province that fared the worst at the primary level of education was Sindh – a percentage change in negative figures. For the rural areas of this province the figure was barely positive. The reasons for this poor performance include increased poverty and unemployment. This is largely blamed on the unequal distribution of land where the wealthy own 150 percent more land than all the other combined. Falling growth rates have also added to the problem of unemployment, as well as declines in income which in turn affect the decisions of families whether to send their children to school or not.

Variables

Coefficient R2

PAKISTAN

HAI 0.438 (52.42)

0.20

URBAN

HAI 0.441 (36.06)

0.20

RURAL

HAI 0.264 (25.50)

0.09

PHNJAB

HAI 0.441 (38.46)

0.21

URBAN

HAI 0.451 (25.60)

0.22

RURAL

HAI 0.259 (16.20)

0.09

SINDH

HAI 0.350 (19.52)

0.15

URBAN

HAI 0.333 (11.00)

0.14

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The overall performance has also not been very encouraging, the change being barely positive at 0.41 percent at the primary level. The Khyber

Pakhtunkhwa performs the best with percentage changes of 4.73 overall and 3.82 percent and 4.81 percent for urban and rural areas respectively.

Table.6: Percentage Change from 1981-1998 in the Level of Education by Area

Area Primary Middle Matric Inter BA/BSc MA/MSc Pakistan Punjab Sindh KPK

2.56 0.41 -1.13 4.73

3.8 4.91 3.55 3.04

2.96 3.02 2.98 3.16

1.47 1.29 2.01 1.31

1.03 0.91 2.14 0.77

0.36 0.39 0.75 0.37

URBAN Pakistan Punjab Sindh KPK

5.39 1.45 3.44 3.82

3.53 3.97 3.36 1.39

2.69 2.44 2.44 -0.43

2.06 1.95 2.23 0.68

1.78 1.53 2.08 0.75

0.82 0.62 1.6

0.46

RURAL Pakistan Punjab Sindh KPK

3.21 4.07 0.13 4.81

3.32 3.81 2.63 3,07

2.51 2.41 2.44 3.02

0.92 0.78 1.30 1.06

0.40 0.35 0.68 0.52

0.19 0.14 0.37 0.24

Source: World Bank Sindh Economic Report, 2009.

This is supported by a report in the Daily Times, dated Wednesday April 19,2007, in which it is mentioned that poverty is responsible for parents sending their children into the labour force at young ages. These children can be seen working in automobile workshops, collecting garbage or at traffic intersections either begging or providing a basic service such as cleaning windshields of cars, especially at road intersections and at traffic lights.

RURAL

HAI 0.353 (15.77)

0.15

KPK

HAI 0.455 (30.89)

0.23

URBAN

HAI 0.442 (19.90)

0.22

RURAL

HAI 0.252 (11.90)

0.11

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Table.7: Area Wise Average Monthly Income and Expenditure on Education

Pakistan

Total

Income Quintiles in Rs. 0–17000 17001–20000 20001–24000 24001–29000 29001–58000

Per Capita Expenditure on Education in Rs.

40.12 78.19 125.15 212.97 650.05

Urban



53.30 98.07 156.88 243.66 756.44

Rural



37.50 71.54 109.76 190.59 499.95

Punjab

Total



48.23 93.82 133.53 229.42 659.59

Urban



65.96 112.31 163.57 277.90 798.97

Rural



44.82 87.56 121.32 201.20 499.33

KPK

Total



51.00 84.95 129.73 227.49 679.98

Urban



49.18 92.23 155.90 219.65 781.51

Rural



37.14 63.04 93.96 165.82 365.66

Sindh

Total



26.81 56.09 110.61 172.13 472.17

Urban



36.42 80.20 152.36 198.48 506.36

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Rural



24.48 43.61 64.17 107.47 244.81

Source: PSLM 2013-14. Table 7 presents the monthly income (by quintile) and expenditure on education, for Pakistan and three provinces, Punjab, Sindh and Khyber Pakhtunkhwa. Both urban and rural areas are covered. Balochistan does not figure in the analysis as the data for that province is inaccurate and unreliable. This table reinforces our argument that households who are in the lowest income quintiles spend less on education as compared with those in the higher income quintiles. This holds true for the country as a whole, for the three provinces and by urban rural breakdown. This supports our argument that if incomes were higher then school attendance would also be higher, as the opportunity cost of not going to school would fall. Children would not be pushed to work by their parents as their incomes would be sufficient to meet the costs of educating their children.

CONCLUSION AND POLICY IMPLICATIONS The conventional wisdom among social science researchers is that education is a public good which is of great benefit to society (Levin 1987). Concomitant with this wisdom is that society has an underlying commitment in pursuing and implementing policies that are in favour of free, yet compulsory, primary education. Yet, in economics there is no such thing as free lunches (or in other words, free goods). Providing free primary education does incur costs to society both open (direct) and hidden to primary school goers (Tan 1985). The question is how are these costs to be distributed to reflect efficiency and equity. Governments claim that they are willing to subsidize primary education by increasing the allocations to the basic and elementary education sector as one way of serving the poor better (Colelough and Lewin 1993). However, increased government spending on education in recent years has failed to deliver the desired effect of increased enrolment rates at the primary level. The ‘Parha Likha Punjab’ (Read, Write, Punjab) project carried out in the country’s largest province has shown a niggardly increase of 1% in the literacy rate in 2005-06 despite the expenditure of vast sums of money on it. The literacy rate increased from 55% in 2004-05 to 56% age point in 2005-06. The literacy rate in Sindh actually

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EJSS 77 The effect of income on educational expenditures.pdf

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