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STUDENT ID 160299281



MODULE TITLE Economics of Development

Assignment Type (i.e. 30% Essay

Journal Review/Essay)

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The state of education in the developing countries has been dismal despite its

well-established significance in socio-economic development of a country. Ninety percent of

61 million un-enrolled primary school-age children live in developing countries whereas

those enrolled can hardly understand, read or write simple statements (UNESCO 2016). For

example, the grade-8 students of Pakistan scored below 50-percent in Mathematics, Science

and English in 2016 (Alifailaan 2016).

The educational policies encompass both the demand and supply sides. The

former are driven by returns to education while the latter focus on improving the quality. This

essay focuses on the latter which includes teacher incentives, reducing teacher absenteeism,

in-service teachers training, reducing class size etc. The student-scores and pass-percentages

are the dependent variables commonly employed for evaluating the impact of these


Section 2 describes motivation for government intervention. Section 3 reviews

three supply-side interventions while section 4 elaborates a potential intervention to improve

the learning outcomes.


The government motivation for intervention is predicated upon the Beckers

human capital model. It argues that education enhances individuals marginal productivity,

income and utility1 (figure 2.1) (Barr 2012: pp.269).

1 Utility is increased in terms of consumption as well as non-pecuniary benefits

e.g., job satisfaction, leisure etc.

Households perceive education as an investment which is dependent upon the direct

costs2, indirect/opportunity costs3 and perceived benefits. The misinformation about returns to

education, misguided beliefs4 and incomplete parental altruism5 may lead to under-investment

in education (figure 2.2)6 (Fiszbein et al. 2009). Similarly, the screening hypothesis argues

that beyond basic level, education does not increase productivity but acts as a signal enabling

employers to distinguish between individuals capabilities (Barr 2012:pp.270)7.

2 For example school fees, costs of books, transportation etc

3 For example loss of earnings due to pursuit of education

4 For example poor families may consider that connections are more important
than effort for upward mobility or formal education require high mental ability
which their children are lacking

5 For example conflict of interest within family may lead to parents to have high
discount rate decreasing educational demand

6 This figure has also been used in my Analytical Assignment for BUSM074
(Economics of Public Policy) submitted on 09.01.2017.

7 The screening hypothesis glosses over the returns of professional training in

addressing heterogeneity of skills and job requirements (Barr 2012).

In addition, education generates positive externality in the form of tax-

dividend8, faster economic growth9, social cohesion10 and better parenting (Barr

2012:pp.271). These external benefits and information asymmetries violate the assumptions

of a purely competitive market leading to socially inefficient resource allocation (market

failure). In such a scenario, the educational demand of individual Q MARKET will be less than

the socially-optimum amount QOPTIMUM (figure-2.3). The government can internalize the

externality by providing a pigouvian subsidy for encouraging the public to gain more

8 As income increases the tax dividend increases

9 For example using of email by one person increases the productivity of other as
well, adaptability to technological changes etc

10 Education engenders greater tolerance for diverse views, civic engagement

and crime reduction

education (figure-2.4:self-explanatory)11. Regulations like mandatory-schooling, minimum

teacher qualification, inspections and standardized-exams are adopted to address information


11 The subsidies may be in cash form (conditional or unconditional) or in-kind

(free text-books, meals, transport etc)


3.1 Teachers Incentives

During the last two decades the concept of teachers incentives has gained

momentum to improve the student scores despite its mixed effects. Martins (2010)

conducted impact evaluation of performance-related-pay introduced in Portugal in

2006-07 by breaking up single pay-scale into two separate scales. The progression in

pay-scales was conditioned upon individual teacher performance measured in terms of

student achievement but was constrained by limited number of vacancies. The

performance was monitored by teachers in higher pay-scales. It was implemented in

all the public schools of Portugal except the Autonomous regions of Azores and

Madeira which along with private schools in mainland formed the control groups for

the natural experiment. There was no improvement in internal grades while the

external grades decreased by 0.064 percentage-points. A grade-inflation of 0.352

percentage-points with a 0.021 percentage-points probability of grade-inflation was

noted. This depicts that the teachers resorted to grade-inflation to facilitate their

personal progression but compromised students performance. Atkinson et al (2009)

also found no causal relationship between grades and performance-related-pay in

England but Lavy (2009) found positive impact in Israel.

3.2 In-service Teachers Training

The in-service teachers training is considered as a low-cost intervention

involving fewer resources for professional development of both existing and new

teachers. Banerjee et al (2007) conducted impact evaluation of a remedial education

program, Balsakhi, introduced in two states of India, Mumbai and Vadodara. It

provided 2 weeks training in basic numeracy and literacy to the teachers of grade 3

and 4 in municipal schools at the beginning and middle of the academic years. Out of

98 primary schools in Vadodara, 44 schools received intervention for grade 3 (group-

A) while other 44 for grade 4 (group-B). The grade 3 of group-B formed the control

group for grade 3 of group-A and vice-versa. Similarly, 77 schools in Mumbai were

selected through stratification by pre-test scores forming groups C and D. Attrition

was limited since the number of schools, classes-per-school and students-per-class are

fixed. The children who dropped out were traced and administered similar tests. The

overall scores increased by 0.14 SDs in the first year and 0.28 SDs in the second year

but the overall two year impact was reduced to 0.10 SDs. The impact on literary skills

in Mumbai was smaller than Vadodara exhibiting that the intervention was more

suitable for deprived areas.

3.3 Reducing class-size

Though reduction in class-size is preferred by parents, teachers and teachers

unions, it has produced mixed effects 12. Krueger and Whitmore (2001) conducted

impact evaluation of Project Star. The students from kindergarten to grade-3 in 79

Tennessee public schools, located in areas of high poverty and black population, were

randomly assigned to small-class (13-17 students), regular-class (22-25 students) and

regular-class/aide. They returned to regular-classes at the end of grade-3. The small-

class formed the treatment group while the others formed the control group. The

experiment began in 1985-86. The late entrants were assigned randomly. The small-

class effect on test-scores decreased from 5 percentage-points to 3 percentage-points

between kindergarten and grade-4. The overall small-class effect on ACT/SAT-scores

was 4.4 percentage-points and 8.2 percentage-points for black students. This shows

that reducing class sizes in initial years has a positive impact on scores, particularly

for deprived students. On the contrary, Hoxby (2000) did not find any significant

impact of class-size reduction on student-scores in elementary schools of California.


This essay proposes a technology-based supply-side policy intervention to

improve the student achievement in Pakistan. It is proposed to distribute free of cost

domestically produced electronic gadgets (similar to an I-pad) to students of grades 6, 7 and

813. This e-gadget shall be customized for modules of Mathematics, Science and English
12 Parents prefer because each student gets more attention, teachers prefer
because it reduces the effort and teachers unions prefer as it increases the
demand of teachers.

13 The Government of Punjab has already been distributing 100,000 laptops per
year to students pursuing higher studies in government universities
( The proposed customized e-gadget

containing video lessons, interactive exercises and questions for facilitating the students in

understanding and applying the concepts. Training sessions shall be held for students to

maximize the utility of gadgets. A school-level monitoring team consisting of members of

local authority, school representatives and community members shall review the activity log

of the gadgets fortnightly to ascertain the usage.

A sample of 20914 government middle schools in district Attock is to be selected

because of their consistent poor performance in grade-8 national exam results (appendix-A).

In the first phase, 100 schools (out of 209) will be randomly selected for policy intervention

in the academic year 2018 and called the treatment group. The remaining 109 public schools

in Attock, the private schools in Attock and the schools in other districts of Punjab shall form

three control groups. The phased-in randomization addresses the resource-constraints and

ethical concerns as the control groups are likely to receive the treatment in future.

The mean scores of students in Mathematics, Science and English will form

the dependent variable while the independent variable will be usage of e-gadget. It will also

be useful to estimate the spillover impact of intervention on drop-outs in transition between

each grade, particularly grade 8 to 9 (middle-to-high)15 (figure-4.2). The annual school exam

results of grades 6, 7 and 8 and national exam results of grade-8 for the academic years 2017-

2021 for treatment and control groups shall be employed. The data sources to be used

can be locally produced at cheaper rates with no other features available.

14School Education Department, Government of Punjab


15 One of the causes of drop-out rates from primary to middle and middle to
high schools is failure in annual exams because it increases the opportunity cost
of repeating the same class. The high drop-out rates at these two levels are
depicted in Appendix-B.

include: PIMUs16 school-level data, PECs17 national exam data and PBSs18 HIE and PSLM

surveys conducted annually.

16 Program Monitoring and Implementation Unit (PMIU) works under Punjab

Governments Education Department to monitor and collect data pertaining to
educational reforms (

17 Punjab Examination Commission (PEC) holds national exams for grade-5 and
grade-8 and publish the analysis report annually

18 Pakistan Bureau of Statistics conducts Household Integrated Economic (HIE)

survey and Pakistan Standard and Living Measurement (PSLM) survey on annual
basis (

Attrition may arise because of dropping-out of low-performing students leading to an

upward bias or vice-versa. If attrition is same in both treatment and control groups, the bias is

minimized. It is further limited by fixed number of students per class. The spill-over effects

are limited: (1) enrollment in public schools is restricted on domicile-basis; (2) private school

students are likely to continue going to private schools because of better performance and

education facilities.

The difference-in-difference method will be used to calculate the impact as it

takes out time invariant effects on student achievement (figure-4.1). The simple DD estimator

y i= + G i+ ei yi Gi
is: , where is improvement in student score for school i, is

categorical variable (1 for treated school and 0 for control) and coefficient measures the

net impact of the intervention. The endogeneity19 problem may arise because of difference in

initial conditions of control and treatment groups. The public schools within the treatment

district (Attock) are categorized in to high performing, average, below average and poor.

Further, the private schools in Attock and the schools in other districts are performing better

than treatment group. It will be overcome by using combination of DD and propensity score

Gi is correlated with standard-error (e)

matching followed by triple-difference (figure-4.3) (Khandker et al., 2010). DD will also help

to overcome unobserved heterogeneity arising from students innate ability, teachers

classroom effort etc., whereas DDD minimizes differential effects of other educational

reforms and economics conditions. The other covariates shall include: availability of

electricity (minimum 12-hours), location (rural/urban), parents literacy, parents computer

literacy, teachers attendance and students attendance.


Education enhances the socio-economic growth of a country by imparting

knowledge, developing skills and refining attitudes and values. Unfortunately, the developing

world is lagging behind in quantity as well as quality of education. Numerous policies have

been implemented but have produced mixed results. The success of a policy in one country

does not necessarily lead to its success in other countries. This essay has outlined a supply-

side policy intervention to distribute e-gadgets to students of public schools to improve their

test-scores. This is likely to benefits students in areas having poor teacher quality, high

teacher absenteeism, large class-size and limited/no internet access.


1. Alifailaan 2016, The Quality of Education in Pakistan, Available from:

2990/The_Quality_of_Education_in_Pakistan.pdf?1476862990 [Accessed on 23 Feb

2. Atkinson, A, Burgess, S, Croxson, B, Gregg, P, Propper, C, Slater, H and Wilson, D

2009, Evaluating the impact of performance-related pay for teachers in England,

Labour Economics, Vol. 16, No. 3, pp. 251-261.

3. Banerjee, A.V, Cole, S, Duflo, E and Linden, L 2007, Remedying Education: Evidence

from two randomized experiments in India, The Quarterly Journal of Economics, Vol.

122, No. 3, p. 1235-1264.

4. Barr, N 2012, Economics of the Welfare State, 5th Edition, Oxford University Press, UK.

5. Fiszbein, A, Schady, N, Ferreira, F, Grosh, M, Kelleher, N, Olinto, P and Skoufias, E

2009, Conditional Cash Transfers: Reducing Present and Future Poverty, The World

Bank, Washington DC.

6. Gustafsson, M 2014, The Human Capital Model and Role of Education [video online]

Available at: and [Accessed 21 February 2017].

7. Hoxby, C.M 2000, The Effects of Class Size on Student Achievement: New Evidence

from Population Variation, Journal of Economics, Vol. 115, No. 4, pp. 1239-1285
8. Khandker, S.R., Koolwal, G.B. and Samad H.A 2010, Handbook on Impact Evaluation:

Quantitative Methods and Practices, The World Bank, Washington DC, USA.
9. Krueger, A.B and Whitmore, D.M 2001, The Effect of Attending a Small Class in the

Early Grades on College-Test Taking and Middle School Tests Results: Evidence from

Project Star, The Economic Journal,

10. Mankiw, N, Taylor, M and Ashwin, A 2016, Business Economics, Second Edition,

Cengage Learning.
11. Martins, P.S 2010, Individual Teacher Incentives, Student Achievement and Grade

Inflation, Center for the Economics of Education, London School of Economics, London.
12. Lavy, V 2009, Performance Pay and Teachers Effort, Productivity and Grading Ethics,

American Economic Review, Vol. 99, No. 5, p. 1979-2011.

13. UNESCO 2016, Leaving no one behind: How far on the way to universal primary and

secondary education?, Available from:

on-the-way-to-universal-primary-and-secondary-education-2016-en.pdf [Accessed on 23

Feb 2017]



Punjab is the most prosperous and populous province of Pakistan having 36 districts

and an overall literacy rate of 54 percent. An estimated 11.4 million children aged 5-16 years

are out of school. There are 36,870 primary (girls: 19,199 & boys: 17,671); 8,417 middle

(girls: 4,810 & boys: 3,607); 6,265 high (girls: 2,879 & boys: 3,386) and 676 higher

secondary (girls: 349 & boys: 327)21.

Approximately 2 million children dropped out in transition from primary to

middle and secondary public schools in 2016. Around 44 percent of women lack any kind of

formal education. The Private schools outperform the public schools (figure A-1) 22. The

20 This fact sheet is based on contents extracted from Alifailaan ( ) and Punjab Examination Commission
Reports ( ).

21 School Education Department 2016, Government of Punjab. Available from:

quality of education is poor (figure A-2)23. The Government of Punjab launched the Punjab

Education Sector Reforms Program (PESRP) in 200324. A number of initiatives have been

taken under PESRP which include: free text-books; up-gradation / development of new

infrastructure, raising qualifications of teacher, contract-based teachers, female stipend

program (FSSP), establishing school councils and community engagement.

22 Figure A-1 is available from:

23 Figure A-2 is available from:


District Attock has been the poorest performing district in both the primary

and middle standard national exams (figure A-3)2526. The performance has been alarming in

the subjects of Science, Mathematics and English. The private schools perform better than

government schools (figure A-4)27.

25 Punjab Examination Commission 2010, Secondary Analysis of Examination

Results- Report 2010, Lahore.

26 Punjab Examination Commission 2008, Secondary Analysis of Examination

Results- Report 2008, Lahore.

27 Punjab Examination Commission 2010, Secondary Analysis of Examination

Results- Report 2010, Lahore.