The rate of return to educational investment in China: a comparative commentary

Abstract

This article comments on several features of the rate of return (ROR) to educational investment in China: first, the ROR to educational investment has increased with the expansion of educational provision since the 1980s. Second, the greater the educational provision, the greater the ROR. Third, the ROR in urban areas is more than that in rural areas. Fourth, the ROR in the public sector is greater than that in the private sector. Meanwhile, from an international comparative perspective, it is commented that possi- ble explanations of the above are a history of elite education and of a screening culture; the rapid transition from a planned economy to a market economy; and the segmentation of the labour market in China. International interest in the rate of return (ROR) to educational investment began in the 1950s, with most studies, notably the pioneering work of Gary Becker (1993), support- ing the human capital theory that education enhanced the individual's capacity for labour productivity. Such studies provided the theoretical economic basis for an expansion of educational provision which began in earnest in the 1960s and which aimed at stimulat- ing and sustaining national economic growth in both developed and developing countries. Consequently, studies of the ROR to investment in education have been used both by states, public and private organizations and groups within states and by individuals as a basic tool to analyse the effectiveness of investment in education. The academic value and the pragmatic use of the ROR to education as such a tool are explained in five ways. First, it can be used to measure the performance of the investment in education. This may be done through a comparison of the ROR on educational investment and the ROR on other forms of capital investment; this can indicate whether the educational investment has paid off (Psacharopoulos and Patrinos 2004). This may guide decisions on educational investment by states, organizations and individuals. Second, and following from this, states and other agencies use studies of the ROR to education, together with complementary research, to develop macro policy decisions both within the specific public policy sector of education and generally (Psacharopoulos and Patrinos 2004). For example, information on the ROR to different levels of education can guide the government's fiscal allocation