On growth, education and immigration.

Is there an economic payoff from sponsoring students to study abroad?

Today’s post strays a little from our usual format. We hope to write more articles that highlight small organisations working on innovative solutions to big development problems. This is our first attempt. Let us know what you think. 

The second half of the 20^th century was a time of extraordinary educational expansion in sub-Saharan Africa. Take your pick of indicator, they all say the same thing: more children were being educated than ever before. Development economists rubbed their hands together with glee. More education will deliver more economic growth, they declared. But they were disappointed. The growth spurt never arrived, economies stagnated, decades were lost.   

As the 20^th century gave way to the 21^st, economist Lant Pritchett asked why. He came up with three reasons. The first was that the quality of education in sub-Saharan Africa had probably been, frankly, terrible. It turns out cramming children into hot, cramped classrooms to be taught by truant teachers does not produce a good education. 

Improvements have been made, but most economists would agree that education quality remains an important constraint on Africa’s economic development. The trouble is, building a high-quality education system takes buckets of time and money. In 2022-23, for example, total public spending on education in the UK was £116 billion, more than three times the entire GDP of Uganda.  

There are organisations working on shorter term, less costly solutions. One of them is Malengo. Based in Uganda, Malengo offers financial support and mentoring to promising students from low-income countries to study at universities in the global north. Its first Uganda-Germany cohort flew out of Entebbe airport in 2021.   

Malengo’s impact section (see here and here) is extremely bullish, citing a treatment effect on income of 1,563%, far above poster-child development interventions like cash transfers, which they say are in the 10 to 30% range. Such spectacular claims will draw scrutiny. Malengo are refreshingly upfront about their calculations, so go and have a look on their website and decide for yourself if you think they are plausible.  

The first group is yet to graduate, so the impact is still hypothetical. Their claims mostly hinge on the fact that graduates in Germany earn an awful lot more than non-graduates in Uganda – and that immigrants in general tend to enjoy significant wage boosts. Very true, although that’s not direct evidence that programmes like Malengo will cause big increases in income.  

Participants probably will earn a lot more than they otherwise would have. But the extent to which this income effect is driven by the education they receive rather than the access to the German labour market the programme facilitates remains to be seen. Malengo is currently conducting RCTs, so we’ll know more in due course. 

And scalability is also a big challenge. Malengo sends students to Germany in part because the public university fees there are very low. That’s okay for cohort sizes in the 10-50 range, but will German taxpayers really be willing to subsidise the upfront costs of educating Africans were it to reach significant scale? While investment in education can pay substantial fiscal dividends, it would likely be a tough sell politically.   

Malengo’s impact section mostly focuses on the individual, as well as the spillovers to their families and communities. But there are reasons to hope that programmes such as these can help catalyse broader economic development when participants return. Returning migrants often add significant economic dynamism to their countries of origin, even acting as catalysts for industrial development. We’ve written in detail about this for workers in the past, and it’s reasonable to believe that this could apply to returning educational migrants too. An IZA study in 2010 found that foreign education of leaders is a significant determinant of FDI inflows in African countries, for example. Interestingly, the authors posit this may be due to the connections made abroad, rather than human capital gains. 

But nothing is guaranteed. Pritchett gave two more reasons why education might not contribute to growth, even if it is high quality. One is if the newly gained skills go unused. A taxi driver with a PhD in biochemistry is no more productive than a taxi driver without a PhD in biochemistry. 

Pritchett’s third reason why education doesn’t always equal growth draws on Nobel prize winning economist Douglas North’s paper on “Institutions, Institutional Change and Economic Performance”. North pointed out that, under the wrong conditions, the best and brightest engage in individually remunerative but socially wasteful activities. He used the example of pirates to show how education can be the means to nefarious economic ends: “To be a successful pirate one needs to know a great deal about naval warfare, the trade routes of commercial shipping; the armament, rigging, and crew size of potential victims; and the market for booty.” In other words, if the educated choose a life of pillage and plunder – rent-seeking in the language of economists – growth will suffer. Dr Octopus had a PhD in Nuclear Physics, the Joker was an expert in game theory – but neither were exactly growth-enhancing.  

So, what matters for growth is whether the highly schooled use their new skills for good or evil, or not at all. Ultimately, that depends on whether the country of origin is set up for growth. Can the educated come back and start dynamic new businesses, or are their only real options over-qualified taxi driving or taking to the metaphorical high seas and enriching themselves but not the country at large?¹

One of the frustrating things about studying education as an economist is that the impacts don’t show up for years. But Malengo’s first cohort of students should be graduating soon. We’ll be waiting with breath bated to see how they get on, both in Germany and back in Uganda.  

1. See here for an interesting discussion on the returns to tertiary education in low-income countries.