How to model a child in school? A dynamic macro-simulation study for Tanzania

Universal primary education ranges prominently among the Millennium Development Goals and is thus regarded as an important component of human development. In addition, education is widely believed to allow a country to access a higher steady state growth path by accumulating human capital. Consequently, education is one of the key pillars in the development strategies of all African countries and is also one of the main areas in which development aid is given on a large scale. If educational policy is to be analysed, the efficiency of public investment planning, the structure of the labor force and the structure of production and thus demand for labor need to be integrated in the analysis. In addition, a distinction of primary, secondary and higher education is required, i.e. a distinction between different skill levels in the labor force. The distributional as well as structural consequences in reaction to investment in education should be regarded as well. Jung & Thorbecke [2003], Agenor et al. [2008] and Maisonnave & Décaluwé [2010] suggest that a Computable General Equilibrium (CGE) model could provide additional insights in these respects. They investigate the effect of an increase in public capital for education in different African countries. While Agenor et al. [2008] assume that only educated labor is used in production, Jung & Thorbecke [2003] in their model for Tanzania and Zambia and Maisonnave & Décaluwé [2010] for South-Africa directly model the choice between different skill levels. Both papers develop a recursive dynamic model where the endogenous skill choice of the labor force does not only depend on the wage differential but also on the level of public capital in education. They find that increasing public capital in education has moderate growth effects. Jung & Thorbecke [2003] find that the production structure of the economy, the initial labor force structure as well as unemployment in the benchmark and targeting of the new investments have strong impacts on the results. This paper takes Jung & Thorbecke [2003] as a point of departure and adds a number of aspects to the model. Most importantly, we model the process of human capital building (i.e. schooling) and the human capital accumulation explicitly instead of including only the outcome of the educational process (i.e. the skill choice). This requires disaggregating skilled labor classes into the number of (physical) workers and the amount of human capital they have accumulated. In addition, the inclusion of schooling also allows to account for the effects of increased human capital accumulation on child labor employment and family income from child labor. Given that child labor is an important production factor in Tanzania as in other African countries, this adds further insights. We develop a recursive-dynamic CGE model with an educational sector and disaggregated households. The model is constructed in GAMS/MPSGE. It has 38 production sectors, 13 production factors (of which 5 types of labor), and 12 household types. We find that in general the aggregate growth effect of higher enrollment rates is positive but small. The magnitude of the growth effect from increased schooling strongly depends on the availability not only of schooling facilities but also of teachers. If enrollment is increased mainly by raising the pupil-teacher ratio we do not find a growth effect. In addition, we find that the availability of enough schools and teachers alone leads to a strong endogenous decrease in child labor even if the government fails to enforce enrollment. The expected future return to education is high enough that a majority of the households accept the foregone earnings from child labor and send their child to school, once the opportunity is there. A substantial increase in enrollment is necessary if human capital accumulation is intended to grow faster than the population. Only a fraction of all enrolled children will really accumulate human capital due to non-passing and lower quality of teaching if the pupil-teacher ratio increases. On the production side we see that in the first years after an increase in enrollment the availability of skilled labor outside the public sector stagnates due to the requirement of additional teachers. In addition, some export-oriented agricultural sectors are very sensitive to decreases in child labor supply and face strongly declining output if enrollment is increased. We find clear indications that capital and also land constrain the production effect from increased high-skilled labor supply.