Education in Lao PDR, 2014-03-13 lao wps 03 - international comparisons 04.docx
HISTORY OF EDUCATION IN LAOS,
WORKING PAPER SERIES NO. 3
CROSS-NATIONAL PATTERNS OF PUBLIC EXPENDITURE ON
EDUCATION: SOME RESEARCH NOTES ON CONSTRAINTS AND
CHOICES, WITH A FOCUS ON ASEAN PLUS 3
Richard Noonan & Vithanya Noonan
Vientiane
2014-03-13
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CONTENTS
Contents .................................................................................................................................... i
List of Figures ........................................................................................................................... i
Glossary ................................................................................................................................... ii
1. INTRODUCTION.............................................................................................................. 1
A. Aim and Scope of this Paper ................................................................................................... 1
B. Data Sources and Limitations ................................................................................................. 1
C. Three Themes ........................................................................................................................... 2
2. RESULTS ........................................................................................................................... 2
A. Some Univariate Distributions ............................................................................................... 2
B. Some Bivariate Distributions .................................................................................................. 5
C. Do Rich Countries Spend More on Education than Poor Countries? ................................ 5
D. Does Higher Education Expenditure Lead to Higher Growth Rates?.............................. 13
E. Interpretation of Results ....................................................................................................... 13
F. Future Research ..................................................................................................................... 19
Bibliography and Sources .................................................................................................... 19
LIST OF FIGURES
Figure 1: Mean GDP per Capita (International US Dollars), by Country .................................... 3
Figure 2: Mean Year-on-Year Growth Rate in GDP (%), by Country ......................................... 4
Figure 3: Expenditure on Education as Percent of GDP, by Country ........................................... 6
Figure 4: Expenditure on Education as % of Total Government Expenditure, by Country ....... 7
Figure 5: Current as % of Total Public Education Expenditure, by Country .............................. 8
Figure 6: GDP Growth Rate as a Function of GDP/capita ............................................................. 9
Figure 7: GDP Growth Rate as a Function of GDP/capita, ASEAN Plus Three ........................ 10
Figure 8: Public Expenditure on Education as % GDP as a Function of GDP/capita ............... 11
Figure 9: Public Exp. on Education as % of Total Gov. Exp. as a Function of GDP/capita...... 12
Figure 10: Percent Current Education Expenditure and as a Function of GDP/capita ............. 14
Figure 11: GDP Growth Rate as a Function of Education Expend. as % of GDP .................... 15
Figure 12: GDP Growth Rate as a Function of Education as % of Total Gov. Expend. ........... 16
Figure 13: GDP Growth Rate as a Function of Percent Education Expenditure Current ....... 17
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GLOSSARY
APT. ASEAN Plus Three.
ASEAN. Association of Southeast Asian Nations. (Brunei Darussalam, Cambodia,
Indonesia, Lao PDR, Malaysia, Myanmar, Philippines, Singapore, Thailand, Viet
Nam).
ASEAN Plus Three. ASEAN plus China, Hong Kong SAR, Macao SAR, Japan, and
Republic of Korea (treating Mainland China, Hong Kong SAR, and Macao SAR as
one).
GDP. Gross Domestic Product.
GDP/c. Gross Domestic Product per capita, i.e., per person in the population.
HRD. Human resource development.
International [US] Dollar. Hypothetical unit of currency that has the same purchasing
power that the US dollar has in the United States at a given point in time. It is
widely used by economists to make comparisons between countries and over time.
It is based on Purchasing Power Parity (PPP).
PPP. Purchasing power parity. An estimate of the amount of money needed to purchase
the same goods and services in two countries, and uses that information to calculate
implicit exchange rates.
SAR. Special Administrative Region.
UIS. UNESCO Institute for Statistics.
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1. INTRODUCTION
A. AIM AND SCOPE OF THIS PAPER
1. Aim. The aim of this paper is to describe some recent cross-national patterns of
aggregate public expenditure on education, and in particular to demonstrate the complexity of
the interrelationships among the variables studied.
2. The study is purely exploratory and only touches the surface. Neither literature
review nor theoretical base is presented. The context within which this study was conducted
was international development cooperation. In that operating context simplifying assump-
tions are sometimes made about relationships between patterns of public educational
expenditure and social and economic growth and development. This study does not attempt
to analyze such relationships but – by showing their complexity – to establish that
international patterns of aggregate public expenditure on education are marked by both
constraints and choices, and to suggest that simplistic conclusions about “appropriate levels
of investment in education” can be difficult to generalize.
3. Note on Statistics and Causation. As all research students learn in STATISTICS
101, “Correlation does not imply causation”. Correlation is merely a measure of the extent to
which two (or more) variables “co-relate”, i.e., the extent to which cases high on one variable
tend also to be high on another variable (positive correlation), or alternatively, cases high on
one variable tend to be low on another variable (negative correlation).
4. Causation, by contrast, is a property of a theoretical model, which not only posits but
also describes a causal mechanism. How does variable X causally influence variable Y?
Unless such a mechanism is posited and described, the researcher enters a dense and
dangerous epistemological jungle. This is not the time or place to explore that jungle, but the
reader should just be cautioned: we are only looking to see if there is a relatively simple
pattern of association. And absence of a simple pattern of relationship does not imply
absence of more complex patterns of relationships.
5. Here we pose simple questions about the relationship between education (correlation)
financing and economic outcomes of the form: Is there a simple, visible relationship between
X and Y? These questions correspond to the null hypotheses: There is no relationship
between X and Y. If we find such relationships, we are free to suggest possible underlying
causal relations without maintaining that we have in any way established or proven these
causal relations.
B. DATA SOURCES AND LIMITATIONS
6. Notes on the Data. The data used here were provided by the UNESCO Institute for
Statistics (UIS). The data set covers the period 2001 – 2010, and the graphs are based on the
country mean values over that period for all countries with more than two data points during
the period. In the diagrams below, data are presented for all countries for which data are
available. The data were downloaded September 27, 2012.
7. The data used here represent International US Dollars. The International Dollar is a
hypothetical unit of currency that has the same purchasing power that the US dollar has in the
United States at a given point in time. It is widely used by economists to make comparisons
between countries and over time. It is based on “purchasing power parity” (PPP), which is
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an estimate of the amount of money would be needed to purchase the same goods and
services in two countries, and uses that information to calculate implicit exchange rates.
8. Notes on the Countries. This study focuses on Laos and other countries included in
ASEAN Plus Three (APT), namely Brunei Darussalam, Cambodia, Indonesia, Lao PDR,
Malaysia, Myanmar, Philippines, Singapore, Thailand, and Viet Nam, plus China, Hong
Kong SAR, Macao SAR, Japan, and the Republic of Korea. In some of the diagrams below
tags are provided to indicate some or all of the APT countries for comparison. In some
diagrams some tags are omitted because the data points are very close together.
C. THREE THEMES
9. This study explores (briefly and superficially) three themes. The literature surround-
ing education sector development projects often involves the implicit (rarely explicit)
assumption that national level economic or other outcomes are influenced by variables related
to education financing. We begin with univariate distributions (looking at one variable at a
time) and then proceed to bivariate distributions (looking at two variables at a time).
10. This study is limited by the absence of data on private expenditure on education,
which in some countries (both rich and poor) can be significant and could change the picture
if evidence were available. Thus all references below to “expenditure on education” refer to
public expenditure on education.
11. Theme 1: Public Financing of Education as Percent of GDP/capita. Do countries
with higher Gross Domestic Product per capita (GDP/c, i.e., GDP per person in the
population) tend to spend a larger proportion of the GDP on education? Do rich countries
make more effort in supporting education than do poor countries? Do countries which spend
more on education experience more rapid growth than countries which spend less?
12. Theme 2: Public Financing of Education as Percent of Government Spending. Do
countries with higher Gross Domestic Product per capita tend to spend a larger proportion of
their public budget on education? Again, do rich countries make more effort in supporting
education than do poor countries?
13. Theme 3: Current Expenditure as Percent of Total Expenditure on Education.
Finally, how do countries tend to balance current expenditure (teacher salaries, materials,
regular repair and maintenance) and investment expenditure (construction of new education
facilities, such as new schools or expansion of existing schools)?
2. RESULTS
A. SOME UNIVARIATE DISTRIBUTIONS
14. Some Economic Data. Figure 1 below displays the distribution of mean GDP/c for
the 183 countries for which data are available on the GDP/c for the period 2001-2010. The
countries are sorted from the highest GDP/c to the lowest. Laos is seen to be relatively low
in the distribution, but not the lowest in ASEAN. Figure 2 below displays the mean year-on-
year GDP growth rate for 193 countries. The mean growth rate is 4.4 percent, and the growth
rate in Laos is seen to be substantially higher than the mean, with an average year-on-year
growth rate of 7.2 percent over the period 2001-2010.
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Figure 1: Mean GDP per Capita (International US Dollars), by Country
Mean 2001-2010 (183 Countries)
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Figure 2: Mean Year-on-Year Growth Rate in GDP (%), by Country
Mean 2001-2010 (193 Countries)
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15. Some Education Data. Figure 3 below displays the distribution of 147 countries on
public expenditure on education as a percent of GDP. The APT countries tend to bunch
together toward the lower end of the distribution. Figure 4 below displays the distribution of
129 countries on public expenditure on education as a percent of total government
expenditure. The APT countries are more widely spread over the distribution of education
expenditure as a proportion of the total government budget than as a proportion of the GDP.
In both of these distributions, Laos appears toward the lower end but is not the lowest country
in the distribution.
16. Figure 5 below displays the distribution of 122 countries by proportion of total public
education expenditure on education which goes to current expenditure, rather than investment
expenditure. The APT countries are widely spread over the lower two-thirds of the
distribution, indicating relatively high proportions allocated to investment expenditure. Laos
appears at the end of the distribution – it spent the lowest proportion of total education
expenditure on current expenditure, 48.5 percent – the only country to spend less than 50
percent on current expenditure.
B. SOME BIVARIATE DISTRIBUTIONS
17. Figure 6 below displays the relationship (or rather, lack thereof) between GDP/c and
year-on-year GDP growth rate. The data points are widely scattered, although a slight
tendency for poorer countries to have higher growth rates is visible. Laos, with a GDP/c of
1.83 thousand International Dollars and 7.2 percent GDP growth rate is shown in red at the
far left, midway between 6 and 8. The logarithmic curve (commonly used by economists in
analysis of such relationships) yields a squared correlation of only 0.04, which means that
only 4 percent of the variance in year-on-year growth in GDP is “explained” (predicted) by
variation in GDP/c.
18. A closer examination between GDP/c and year-on-year GDP growth rate focusing on
the APT countries is shown in Figure 7 below. There the relationship is much clearer,
although the pattern is disturbed by China, Macao SAR, which is a distinct outlier. For APT,
the squared correlation is 0.22. For the ten ASEAN countries the relationship is much
clearer, and the squared correlation is 0.55.
C. DO RICH COUNTRIES SPEND MORE ON EDUCATION THAN POOR
COUNTRIES?
19. As seen in Figure 8 below, there is no clear and simple relationship between public
expenditure on education as a proportion of GDP and GDP/c. Most countries, both rich and
poor, tend to spend between around 3 and 6 percent of GDP on public education, with a mean
of approximately 4.7 percent. There is a very slight tendency for richer countries to spend a
larger portion of the GDP on education than poorer countries spend. The position of Laos is
shown in red in the lower left corner.
20. Figure 9 below shows the opposite relationship between public expenditure on
education as a proportion of total government expenditure and GDP/c. There is a slight
tendency for poorer countries to spend a larger portion of the total government expenditure
on education than rich countries spend. The position of Laos is shown in red in the lower left
corner.
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Figure 3: Expenditure on Education as Percent of GDP, by Country
Mean 2001-2010 (147 Countries)
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Figure 4: Expenditure on Education as % of Total Government Expenditure, by Country
Mean 2001-2010 (129 Countries)
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Figure 5: Current as % of Total Public Education Expenditure, by Country
Mean 2001-2010 (122 Countries)
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Figure 6: GDP Growth Rate as a Function of GDP/capita
Mean 2001-2010 (183 Countries)
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Figure 7: GDP Growth Rate as a Function of GDP/capita, ASEAN Plus Three
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Figure 8: Public Expenditure on Education as % GDP as a Function of GDP/capita
Mean 2001-2010 (139Countries)
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Figure 9: Public Exp. on Education as % of Total Gov. Exp. as a Function of GDP/capita
Mean 2001-2010 (124 Countries)
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21. Figure 10 below displays a weak relationship between proportion of total public
expenditure on education which goes to current expenditure and the GDP/c. There is a slight
tendency for poorer countries to spend a lower proportion on current expenditure (and thus a
higher proportion on investment) than richer countries. Laos is clearly visible with the lowest
proportion of the total education budget allocated to current expenditure (compare with
Figure 5 above).
D. DOES HIGHER EDUCATION EXPENDITURE LEAD TO HIGHER GROWTH
RATES?
22. Figure 11 below displays GDP growth gate (%) and public expenditure on education
as a proportion of GDP, 2001-2010 (145 countries). Although most countries tend to cluster
in the middle range of both education expenditure as a proportion of GDP and year-on-year
growth rate, the outliers make the pattern more easily visible. Countries which spend more
heavily on education as a proportion of GDP tend to have lower growth rates. Laos is shown
in red on the left edge of the central cluster with a growth rate between 5 and 10.
23. Figure 12 below displays GDP growth gate (%) and public expenditure on education
as a proportion of total government expenditure (126 countries). Most countries tend to
cluster in the middle range of both education expenditure as a proportion of total government
expenditure and year-on-year growth rate. The two most extreme outliers in terms of growth
rates both appear in the mid-range of education expenditure, approximately 16-17 percent of
total government expenditure. The upper extreme is a growth rate of over 15 percent, and the
lower extreme is negative. Laos is shown in red on the left part of the central cluster with a
growth rate between 6 and 8. No trend line is added to the display because there is no visible
trend – the squared correlation is only 0.01.
E. INTERPRETATION OF RESULTS
24. Low but Normal Education Sector Expenditure. With respect to education spend-
ing, either as a proportion of the GDP or as a proportion of total government expenditure,
Laos appears relatively low in the overall distribution but not the lowest or even the lowest
among the APT countries.
25. A Pathological Pattern of Expenditure? Among the variables examined, Laos is on
the extreme end in only one, namely the proportion of total education expenditure which
goes to current expenditure. The data displayed represents the mean over the period 2001-
2010, based on the four existing data points. Moreover a study covering the period 1990-
2000 revealed similar results beginning in the mid-1990s (Noonan, 2001). It may be
concluded that this situation is not just a fluke. It is a situation well known to those familiar
with development cooperation in the education sector in Laos – schools are built for which
neither teachers nor textbooks are available. To what extent does this impact negatively or
positively on economic development, specifically on GDP growth rates?
26. Some evidence is provided in Figure 13 below, which displays the relationship
between proportion of the total education budget allocated to recurrent expenditure and year-
on-year GDP growth.
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Figure 10: Percent Current Education Expenditure and as a Function of GDP/capita
Mean 2001-2010 (113 Countries)
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Figure 11: GDP Growth Rate as a Function of Education Expend. as % of GDP
Mean 2001-2010 (145 Countries)
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Figure 12: GDP Growth Rate as a Function of Education as % of Total Gov. Expend.
Mean 2001-2010 (126 Countries)
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Figure 13: GDP Growth Rate as a Function of Percent Education Expenditure Current
Mean 2001-2010 (119 Countries)
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27. The most extreme case of investment as a proportion of total education expenditure
(highest proportion investment, lowest proportion current) is Laos, with less than half of the
total education budget allocated to recurrent expenditure and a mean growth rate well above
the average. The twenty countries with the highest proportion of recurrent expenditure
(lowest proportion investment) have a mean growth rate well below the overall cross-country
mean, and the twenty countries with the lowest proportion of recurrent expenditure (highest
proportion investment) have a mean growth rate well above the overall cross-country mean.
Although the data points are widely scattered, the pattern is consistent with the hypothesis
that higher proportions of investment expenditure (low proportions of current expenditure) in
education tend to promote higher rates of economic growth.
28. Complexity and Consequences. Richer countries tend to have lower growth rates
than poorer countries, although the relationship is very diffuse. This is a well-known and
long-established pattern in development economics, but with considerable variation.
29. Richer countries also tend to spend a larger proportion of the GDP on education: they
have overall higher levels of education, with higher education participation rates at every
level. The relationship is very weak, however: many poorer countries spend heavily on
education.
30. This leads to what might appear to be a contradiction, as suggested in Figures 11 and
12 above. Countries which spend more on education as a proportion of GDP tend to have
lower growth rates than countries which spend less. In apparent contradiction, countries
which spend more on education as a proportion of total government spending tend to have
higher growth rates than countries which spend less.
31. One source of complexity visible here, is the fact that the data set covers only public
expenditure on education: private expenditure on education is hidden from the analysis, and
private expenditure on education can be high both in richer countries and poor countries. In
most countries, however, the largest source of total education almost certainly comes from
the public budget.
32. A second source of complexity is even more visible in relation to education
expenditure as a proportion of total public expenditure. The contrast between Figures 8 and 9
above is striking. Richer countries tend to spend a larger proportion of the GDP on
education; poorer countries tend to spend a larger proportion of the public budget on
education (although note that in both cases the relationship is weak).
33. Part of the explanation for this latter difference between richer and poorer countries in
education spending patterns can be suggested by Figure 5 above and especially by Figure 13
above. Governments in many poorer countries see human resource development (HRD) as
providing a major strategic thrust toward social and economic development and moderniza-
tion. This is certainly the case among the ASEAN countries, especially as they approach the
establishment of the ASEAN Economic Community in 2015. As a part of their development
efforts, governments raise the overall level of education expenditure as a proportion of the
total government budget.
34. But more important than simply raising expenditure on education is the need to spend
more on education system development. Governments need to invest in expanding and
developing the system – building and equipping more, bigger, and better education and
training facilities at all levels, developing new curricula, etc. Thus countries making a
strategic push for social and economic development and modernization through HRD will
tend to spend a larger proportion of their total education budget on investment than countries
not making such a strategic push.
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F. FUTURE RESEARCH
35. The study presented here is at a very simple level of cross-national comparative
analysis. We have touched only very briefly and superficially on some of the numerous
issues related to specification of the variables, the functional forms of the equations, and the
structure of the analytical model.
36. We have not discussed an analytical model here, other than to note (in paragraph 5,
page 1 above) that we are exploring the existence or non-existence of a correlation between
variables. In the captions to the figures we have used the form “Y as a function of X” as a
matter of convenience to indicate what is on the Y axis (vertical) and what is on the X axis
(horizontal) but without the assumption of causal relationship.
37. What we have observed here represents a conflation of the correlations of several
variables, for example:
The correlation between level of economic development and economic growth rate
(richer countries tend to have lower growth rates);
The correlation between level of education expenditure and economic growth rates:
o Richer countries tend to spend more on education as a proportion of GDP and
to have lower growth rates; but
o Poorer countries tend to spend more on education as a proportion of total
government expenditure and to have higher growth rates.
38. To sort out the inter-relationships at cross-national level among economic variables
and education expenditure variables, given these complexities (and others not discussed
above) would require the development of a causal model with explicit causal mechanisms
relating the variables. This would in turn require explicit functional equations and a suitable
data set. It would require a multivariate path analysis.
39. Only a very limited number of variables have been included in the present study.
Other relevant variables for such an analysis could include:
Literacy;
Population growth;
Economic and labor force structure;
International trade and labor force migration patterns; and
Penetration of transportation and telecommunications networks.
BIBLIOGRAPHY AND SOURCES
Noonan, R. (2001). “Education Financing in Lao PDR. Patterns of Expenditure: A turbulent
decade of transition (1990 – 2000)”. Vientiane: Sida, World Bank. June 15, 2001.
UIS. (2012). UNESCO Institute for Statistics, Custom Tables. Participation and literacy data
accessed 19 October , 2012 at:
http://stats.uis.unesco.org/unesco/TableViewer/document.aspx?ReportId=136&IF_Language=eng&
BR_Topic=0