Meeting the millennium development goal in education: a cost-effectiveness analysis for Ecuador

What is best strategy to reach the Millennium Development Goal of basic education for all will depend on the specific country context. This paper introduces an input-output method to estimate the financial inputs required to achieve the MDG for primary education and an additional target of enhancing access to secondary education.1 As such the approach followed here is not new, but the innovative element is combining educational demand and supply variables considering both cost dimensions and quality of services as measured among others through test scores (outcomes), quality of school inputs and the nature of delivery of services (privatepublic, centralized or decentralized). We take the following analytical steps: (i) define a production function for specific education outputs (enrolment), (ii) isolate the main determinants of such output (considering both demand and supply factors); (iii) estimate costs per unit of producing such output, and – based on estimated elasticity’s and unit costs ensuing from the education production function – (iv) calculate the financing needs of reaching key education goals. We find that determinants of access to schooling are significantly different for urban and rural and for poor and non-poor children. Furthermore, the determinants also differ when referring to access to primary or secondary education. Quality of school inputs does matter in all cases though to varying degree. Particularly, class size, shares of trained teachers and greater school autonomy (in hiring teachers and managing schools) are relevant. Quality of education outcomes, i.e. test scores, while very poor in Ecuador does not seem to influence school enrolment. The upshot is that with a more cost-effective use of resources for primary education, the MDG target of 100% of net primary school enrolment in urban areas is within reach in a period of 4 to 5 years at virtually no additional budgetary cost. Meeting the target for the rural population seems more complicated. In secondary education, important progress can be made to reach a target of 70% net enrolment (with important expected positive externalities for economic growth) by enhancing the share of trained teachers, expand coverage of school demand subsidies and improve class infrastructure. This target is within reach for the poor and non-poor urban population by 2007 at an estimated additional cost of between 0.1 and 0.6% of GDP, depending on alternative cost-effectiveness considerations. Reaching the 70% target for the rural population will require a much longer time period, but at similar additional annual budget implications