Investing in education in India: Inferences from an analysis of the rates of return to education across Indian states

This thesis attempts to understand whether the payoffs to education change in any systematic fashion as countries develop economically and invest more in their educational systems. Through such an analysis, we can gain a better understanding of how education may contribute to economic growth, and as a corollary, how states and nations should invest in education to maximize growth.;The thesis uses the 1983 and 1993 India National Sample Survey data on earnings and education to compute the rates of returns to all levels of schooling by gender and location (rural, urban) in India as a whole as well as in the different states of India. Much of the initial inspiration for this work comes from the arguments made by two economists, George Psacharopoulos and Martin Carnoy, in the 1970s. They presented alternative views about the relationship between education and economic development. Psacharopoulos argued, based on capital theory, that economic and social factors have a minimal impact on the pattern of rates of return to education across different levels of economic development, and that the rates of return are always highest at the primary level, followed by secondary and tertiary levels. According to Carnoy, however, the rates of return to primary, secondary and tertiary education will rise and fall in this order as a country goes through various developmental stages, and economies with lower levels of development are likely to have higher returns to primary and middle levels, and relatively lower returns to secondary and tertiary levels of education; the opposite would hold for more developed economies. These alternative views have different implications for investment in education in a country as vast and heterogeneous as India.;The findings in this thesis suggest that different Indian states should probably focus on different levels of schooling, depending on their relative economic development status. Although the universal emphasis on primary education was necessary and justified at the time of independence, a similar emphasis across all states is perhaps unnecessary at this point, except that states need to invest in primary education first in order to advance people into secondary and higher education.