Returns to Education

Spending in Pakistan
Ghulam Ali Ansari
Noman Tahir
Hassan Abrar
Ali Noor
Purpose:
The importance of education cannot be denied but the extent of the benefits can be analyzed
based on the costs required to receive it. A major portion of the income of the average
Pakistani household is spent on providing decent education to the children, in order to make
sure they are prepared for the future, but the actual return on this investment is rarely
questioned and as a result the household faces additional financial burden with no certainty
that this will be worthwhile.
Therefore the purpose of this report is to help the Pakistani households make the right
decisions about their educational spending, based on numerous factors such as medium of
education, years of schooling and quality of education.

Problem Statement:
In a country like Pakistan where state education is weak and thus multiple education systems
exist, the ROI on education can’t be standardized. This is because each education has its own
dynamics of both investment needed and return gained. This is further complicated when
focusing upon specializations, i.e. Art, Engineering, Medical, Business etc.
Thus we will simply have to focus on the different systems individually and try to come up with
both system focused data and country wide data and then compare them both in a way that
will bring forth a clear picture of the actual returns on education.
To come up with the return on investment on education in Pakistan, we will focus on many
different systems, transitions, fields of study, and specializations. The research will primarily
focus on monetary returns but we will not ignore the time and effort put in as well and at least
try to usher in the impact of these two important factors.

Scope:
 The differing rates of return on investment on education.
 How private investment in education varies for developed and developing countries.
 The returns on private education system in contrast to the public education system.
 Examine the changes in private rates of return to employees possessing different levels
of human capital represented by education.
 Analyse the investment on different levels of education in terms of rates of return.
 How ROI is applicable in the context of education?
Understanding how private education in developing countries has shaped in accordance
with the developed in the last two decades.
 The difference in opportunities available in developed vs developing countries.
  Do students studying in developed countries receive similar opportunities in developed
countries?
 How has the approach to ROI evolved in the education industry?

Limitations:
● Insufficient time to gather significant primary data information to cover large geographical scope
of the subject. Although various techniques and research will be reviewed for assistance but it is
unlikely to reach every spot physically and incorporate relevant information.
● All information and data of research will be subject to timely changes in various factors, such as
government policies, education and awareness, industrial criteria etc. Time can change the
findings and conclusion of research paper and the subject studied.
● Research will not incorporate exceptional cases and outliers in respect to the subject. It will only
take into account the overview and in depth study of elements in consideration. There are always
precedent where some cases does not meet the findings and results pattern.
● Return on private education is very wide and objective discourse. People with different
perspective on education spend disproportionately and end up with different incomes and return
on it. This research paper will carefully evaluate these factors and answer lot of probing
questions. However, the examples and data collected in research is conditional and may not fit
with every case related.

Methodology:
The data used for this report will be acquired by the Pakistan Integrated Household Survey (PIHS)
published by the Federal Bureau of Statistics.

In order to calculate return on education spending we will use the "Mincerian" method or "basic
earnings function." It involves using years of schooling (S), the fitting of a function of log-wages (LnW),
years of labor market experience and square as independent variables. In this semi-log specification the
coefficient on years of schooling (b) can be interpreted as the average private rate of return to one
additional year of schooling, regardless of the educational level.

Ln Y = α0 + b.S + c.t + d. t2 + U

This model can be expanded further to include the effect of several other variables like medium of
education, stream of education, quality of education etc.