Returns to Investment in Education, the Case of Nicaragua
Relative to its GDP and to the Central Government’s budget, Nicaragua spends as much on education as any other country in Central America, yet it has the second highest illiteracy rate and one of the lowest primary school enrollment rates among Latin American countries. Part of the reason for Nicaragua’s relatively poorer performance has to do with the fact that on a per capita basis its expenditures are among the lowest in the region. Thus, while average expenditures on education per student in Central American and Panama amount to $362 per year, in Nicaragua they amount to only about $61. The other reason has to do with the Nicaraguan Constitution, which stipulates that 6 percent of the central government’s budget must be devoted to financing universities. As a result, Nicaragua spends 14 times as much per university student as per elementary school student, compared to an average ratio in Central America of about 5:1. Is Nicaragua maximizing the returns of its expenditures on education or is there a better way of allocating the budgetary resources devoted to education?
Keywords: Education Returns, Externalities, Budget Allocation
Dr. Mohamed Ayadi
Associate Professor, Department of Finance, Operations, and Information Systems, Brock University