Schooling, skills, and the returns to government investment in education: an exploration using data from Ghana

Examines the accuracy and usefulness of estimates of rates of return to formal schooling based on the standard human capital model of Becker and Mincer. It investigates whether failure to account for differences in ability and school quality across a random sample significantly biases estimates of the private return to schooling derived from estimates of wage equations. This is done using an unusually rich data set from Ghana. When years of schooling are used to measure the accumulation of human capital, there are virtually no returns to schooling in the private sector. Replacement of years of schooling by reading and mathematical ability does show positive returns to acquired skills. However, these rates of return may be of little use to governments when making investment decisions because such decisions are much more complex than those of individuals. In particular, many government investments in education are designed to raise rates of return to schooling by raising school quality, but decisions by individuals assume that both rates of return and school quality are exogenous. -from Author