This series of u n r e f e r r e d d i s c u s s i o n papers is intended t o provide an i n i t i a l c i r c u l a t i o n of work prepared under the a u s p i c e s of t h e Popula t ion and &man Resources Divis ion. The conc lus ions and v ievs expressed i n t h i s paper a r e t h o s e of t h e a u t h o r and do n o t n e c e s s a r i l y r e f l e c t those of t h e World Bank Group. The paper is a d r a f t f o r d i s c u s s i o n , and comments a r e welcome.

Populat ion and Human Resources Div i s ion

Discuss ion Paper No. 82-3

EDUCATION AND AGRICULTURAI. EFFICIENCY I N NEPAL

January 1982

9.

i i

, i i Prepared by:

L . I

1 Som Pudasa in i , Unj.vertii:y of Minnesota

!, C - -

-3 This paper i s based on t h e author 's Ph.D. d i s s e r t a t i o n a t t h e Unfvers i ty of ~Ylnnesota, and i t s prepara t ion was supported by DEDPH. I t w a a prepared i n coa junc t ion wi th World Bank Research P r o j e c t RPO 671-49, " ~ d u & t i o n and Xural ~ e v e l o & e n t i n Thailand and Nepal " . - -

The World Bank Washington, D.C. 20433

U. S . A .

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ABSTRACT

This s tudy examines i f education (and extension) has h tghe r c o n t r i - but ion t o a g r i c u l t u r a l p roduc t iv i t y (output) i n a modernizing economic environment than i n a t r a d i t i o n a l a g r i c u l t u r e and i f educat ion enhances t h e p roduc t iv i t y growth through i ts workers and/or a l l o c a t i v e e f f e c t s i n those environments. I n add i t i on , i t a l s o examines i f educat ion and v a r i - a b l e s such a s farm revenue, modern input use ofLchild m o r t a l i t y a r e in- t e r r e l a t e d . Data gathered by interviewing 205 fanners of modernizing t e r a i r eg ion (Bara D i s t r i c t ) and 149 farmers of t r a d i t i o n a l h i l l r eg ion (Gorkha D i s t r i c t ) a r e u t i l i z e d . Product ion and p r o f i t f unc t ions a r e em- ployed i n a d d i t i o n t o t a b u l a r a n a l y s i s t o a t t a i n t h e ob jec t ives .

Evidence from t h i s s t udy suppor t s t h e content ion t h a t educa t ion has a much h igher con t r ibu t ion t o t h e ou tput i n nodernizing t e r a i than i n t h e more t r a d i t i o n a l h i l l region. Worker and a l l o c a t i v e a f f e c t s p o s i t i v e l y con t r ibu t e t o t he output i n both regions. Extension has no s i g n i f i c a n t impact on output i n e i t h e r region. Education and extension a r e weak sub- s t i t u t e s i n farm dec i s ion making process i n t he t e r a i , whi le t h e e f f e c t of t h e i r i n t e r a c t i o n is ambiguous i n t he h i l l . Education and farm revenue, and educat ion and modern inpu t use a r e p o s i t i v e l y r e l a t e d i n both reg ions . However, educat ion and use of modern innovat ions a r e much s t r o n g l y cor- r e l a t e d i n t he t e r a i than i n the h i l l region. Child mor t a l i t y and edu- c a t i o n , on t h e o the r hand, a r e i nve r se ly r e l a t e d i n both reg ions .

TABLE OF CONTENTS

INTRODUCTION I

LITERACY AND INVESTMENT I N EDUCATION 4

STUDY AREAS AND SAMPLE CHARACTERISTICS

THE HODEL

Produc t ion Funct ion Model

P r o f i t Funct ion Model

THE EMPIRICAL FINDINGS

R e l a t i o n s h i p Between Education and Other V a r i a b l e s

Product ion Funct ion Es t imates , N l o c a t i v e and Worker E f f e c t s of Education

A l l o c a t i v e and Technica l E f f i c i e n c i e s of Educat ion From P r o f i t Funct ion

A g r i c u l t u r a l P r o d u c t i v i t y i n Modernizing and T r a d i t i o n a l Environments

APPENDICES 39

I Primary Level Schools , Teaching S t a f f and Enrollment i n Nepal

I1 Secondary Level Teaching S t a f f and Enrollment i n Nepal

I11 *Higher Leve l Teaching Staf,f and Enrollment i n Nepal

I V The T h e o r e t i c a l Aspects of t h e Product ion Function Model

REFERENCES -

EDUCATION AND AGRICULTURAL PRODUCTION EFFICIENCY I N NEPAL

BY

Som Pudasaini

An important reason f o r low a g r i c u l t u r a l p roduc t iv i t y growth and

thus , i n t u rn , a s l ugg i sh pace of economic development i n developing

coun t r i e s is suggested t o be a low l e v e l of i n t roduc t ion of modern agr i-

c u l t u r a l technology and a l a c k of s u b s t a n t i a l investment i n human c a p i t a l

development (Schul tz , 1964). It has been suggested f u r t h e r t h a t educat5on

has s u b s t a n t i a l con t r ibu t ion t o product iv i ty o r output i n farming a r e a s

1 / charac te r ized by changing technology- (Nelson and Phelps, Schul tz , 1975)

and t h a t educat ion con t r ibu t e s t o a g r i c u l t u r a l ~ r o d u c t l o n through the

worker and a l l o c a t i v e e f f e c t s (Welch). I n l i g h t of t he above sugges t ioas ,

s e v e r a l empi r i ca l quest ions arise: Does educat ion have higher contribu-

t i o n t o t h e ou tput i n modernizing a g r i c u l t u r a l environments than i n tra-

d i t i o n a l a r ea s? Which e f f e c t of education con t r ibu t e s s i g n i f i c a n t l y to

t h e output i n modernizing and t r a d i t i o n a l environments? Do t h e educated

farmers a t t a i n h igher economic e f f i c i e n c y r e l a t i v e t o the i l l i t e r a t e s iai

one o r both environments? Is t h e r e any p o s i t i v e c o r r e l a t i o n betveen eats-

ca t ion and farm income o r modern innbvation? The empir ica l answers t o

t he se quest i ons have impor t an t po l icy irnplicat i ons i n economic development - planning and r e s o u r c ~ a l l o c a t i o n i n educat ion and a g r i c u l t u r a l innovat fans

.L - - r

The au thor g r a t e f t l l y acknowledges t h e h e l p f u l comments of Vernon Ru t t an a t va r ious s t a g e s of t he development of t h i s paper and is indehted to W i l l i s Peterson f o r h i s comments on an e a r l i e r d r a f t .

1 / In a broader sense education can be argued t o have higher payoff i n - any d isequi l ib r ium s i t u a t i o n s regard less of whether t he d i s e q u i l i b ~ u m a r i s e s a s a r e s u l t of changes i n technology, market condi t ions o r weether s i t u a t i o n s .

i n t h e developing coun t r i e s .

S t u d i e s conducted i n bo th t h e U.S. ( G r i l i c h e s , G i s se r , Fane, Huffman,

Khaldi) and t h e developing c o u n t r i e s (Chaudhari, Halim, Pudasa in i , 1979,

Wu) have e m p i r i c a l l y e s t a b l i s h e d t h e impcrtance of educat ion i n a moder-

n i z i n g a g r i c u l t u r e . Of t h e s t u d i e s , Huffman and Wu a l s o a t tempted t o

determine t h e r e l a t i v e s i g n i f i c a n c e of t h e worker and a l l o c a t i v e e f f e c t s

i n t h e modernizing environment. The i r f i n d i n g s c o n f l i c t wi th each o t h e r

s i n c e Huffman r e p o r t s t h e g r e a t e r importance of t h e a l l o c a t i v e e f f e c t

2/ whi le Wu f i n d s t h e worker e f f e c t t o su rpa s s t h e a l l o c a t i v e e f f e c t . N o n e

t of t h e s t u d i e s , however, e x p l i c i t l y compared t h e impact of educa t ion i n

t e chno log i ca l l y changing and t r a d i t i o n a l a g r i c u l t u r a l environments t o

permit t o draw any meaningful conclusion concerning t h e d i f f e r e n t i a l yay-

o f f of educa t ion i n changing and t r a d i t i o n a l a g r i c u l t u r a l environments.

This s t u d y is i n i t i a t e d wi th f i v e main o b j e c t i v e s . The f i r s t is t o

examine i f t h e r e is any r e l a t i o n s h i p between educa t ion and o t h e r f a c t o r s

such a s farm income, modem i n p u t u se , o r c h i l d mor t a l i t y . The second

is t o i n v e s t i g a t e whether educa t ion con t r i bu re s t o t h e ou tpu t through t h e

worker and/or a1. locat ive e f f e c t s i n t h e modernizing and t r a d i t i o n a l en-

vironments. The t h i r d is t o test t h e con t en t i on t ha t educat ion ha s a . e

C

s u b s t a n t i a l l y h i g h e r c o n t r i b u t i o n t o t h e ou tpu t i n a changing a g r i c u l t u r a l

environment than i n more t r a d i t i o n a l a r e a s . Fourthly, i t is t o determine i

i f educat ion and extensior, a r e s u b s t i t u t e s i n thee%arrn dec i s i on making

B r 1 - w'' A s tudy t h a t sheds l i g h t on t h i s i s s u e is a survey of l i t e r a t u r e from

t h e developing c o u n t r i e s (Lockheed, Jamison and Lau) which r e p o r t s a much h ighe r c o n t r i b u t i o n of educa t ion t o ou tpu t i n a modernizing environment than i n a t r a d i t i o n a l a r ea .

process. Las t ly , i t is to t e s t i f the eclucated farmers i n one or both

environments possesses i r tg le r economic e f f i c i e n c g l r e l a t i v e t o the

i l l i t e r a t e s and determine i f production and p r o f i t funct ions g ive s i m i l a r

r e s u l t s concerning the impact of education.

Bara d i s t r i c t i n the c e n t r a l t e r a i is se l ec t ed t o represent t h e

L .. modernizing t e r a i region and Gorkha d i s t r i c t i n t h e western h i l l is cho- i b

1 sen t o represent the r e l a t i v e l y t r a d i t i o n a l h i l l region. Production and P

p r o f i t funct ion models a r e employed i n addi t ion t o t abu la r a n a l y s i s to

a t t a i n the s t i p u l a t e d objec t ives .

P I

This paper is divided i n t o f i v e sec t ions . The f i r s t provides a

glimpse of t h e l i t e r a c y r a t e and investment in education in Nepal. The

k second descr ibes the sample and i t s c h a r a c t e r i s t i c s . The t h i r d d i scusses

the models (production and p r o f i t funct ions) employed i n t h i s study. The

fou r th r e p o r t s the empir ical r e s u l t s . F ina l ly , concluding remarks a r e

presented.

3/ Economic e f f i c i ency c o n s i s t s of two coinponents : t echnica l and a l h - ' i is

c a t i v e e f f i c i e n c i e s . ,Education cont r ibutes t o a g r i c u l t u r a l output .- * by enhancing technicah and /or a l l o c a t i v e e f f i c i ency of farm producers .

The technica l e f f i c i ency improving e f f e c t of education i s gene ra l ly !P - ca l l ed the worker e f f e c t while the a l l o c a t i v e e f f i c i ency enhancing e f f e c t is know as a l l o c a t i v e e f f e c t (welch). The terms worker e f f e c t and technica l e f f i c i e n c y , and a l l o c a t i v e e f f e c t and a l l o c a t i v e e f f i - ciency a r e interchangeably used i n t h i s study.

I. LITERACY AND INVESmENT I N EDUCATION

Agr icul ture is t h e most v i t a l s ec to r i n Nepal, where i t provides

employment t o more than 90 percent of the populace and cont r ibutes more

than 60 percent t o the gross domestic product and more than 70 percent t o

t o t a l export. Despite its v i t a l r o l e i n the o v e r a l l development of t h e

economy, the a g r i c u l t u r a l seccor i n Nepal has remained t r a d i t i o n a l and E

subsis tence. An important reason f o r i t s s tagnat ion is bel ieved t o be a F t

1 l ack of s u b s t a n t i a l investment in human c a p i t a l i n addi t ion t o a l o w l e v e l

I of technological innovation. A meager 5.1 percent l i t e r a c y r a t e in 1952/54

E and an 8.8 percent l i t e r a c y r a t e i n 1961 appears t o r e in fo rce t h e p laus i -

b i l i t y of t h e above argument (Table 1) . With the growing awareness of both the va lue of education and low

product iv i ty of a g r i c u l t u r e , Nepal s t a r t e d inves t ing increasing amounts

of resources i n education, beginning i n the mid-1960's (Table 2 ) . The

l e v e l of publ ic spending i n education rapid ly expanded during the 1970's.

Consequently, t h e number of i n s t i t u t i o n s (schools , co l leges and univer-

s i t i e s ) , teaching s t a f f and pupi l s dramatical ly increased i n primary,

secondary and h igher l e v e l s during the l a s t decade (Appendix I t o 111).

These e f f o r t s r a i sed the o v e r a l l l e v e l of l i t e r a c y from 8.8 percent i n

I t 1961 t o 19.2 percent in 1975. The l i t e r a c y l e v e l of t he female populatfon

increased from 1.5 t o 5 percent and tha t of the male population rose from

16.7 t o 33.4 percent over the same period.

However, t h e l e v e l of growth of publ ic investment- in education and I

the increase i n the number of l i t e r a t e man power was nut uniformly d i s t r i -

buted through-out the country during the period. The l e v e l of investment

Table 1. L i t e r acy r a t e of t h e popula t ion 15 y e a r s of age and o l d e r , Nepal.

--- Percen t L i t e r a t e Year Tot a1 Male Female

L Source: Adapted from UNESCO, S t a t i s t i c a l YeBrbook, 1963, 1967, 1977.

! t

t f

Table 2. P u b l i c expendi tu res on educat ion i n Nepal.

! Expenditures as Percen t of k Gross

Expendi tures (1,000 rupees) domes t i c T o t a l p u b l i c Year Recurr ing C a p i t a l To t a l product expendi tu res

1953 N. A. N.A. 3,656 N.A. N.A.

1962 19,775 9,559 29,334 N.A. N.A.

C 1967 43,500 N.A. 43,500 0.6 6.5

- 1973 - N.A. N.A. 115,400 1.0 10 .O

L

i- 1974 , N.A. N.A. 139,700 N.A. 11.4 *

1 -

1975 201,776 27,687 229,463 1.5 12 .O B i I

Source: UNESCO, S t a t i s t i c a l Yearbook, 1963, 1967, 1975, 1976, 1977-

N.A. = not a v a i l a b l e U.S. $1 = RS12.00

val.leys) than i n the h i l l region u n t i l e a r l y sevent ies . Given t h e low

l e v e l of l i t e r a c y in genera l and ex i s t ing d i s p a r i t y between the regions,

t h e Nepalese government i n i t i a t e d "The new education plan" i n 1971 v i t l l

t h e ob jec t ive of providing b e t t e r educat ional oppor tuni t ies t o the people

of a l l regions. Consequently, educat ional s t a t u s of t h e h i l l region has

been improving s ince then even though the re has been no percept ib le

improvement i n t h e technological s t a t u s of the region. On t he o ther hand,

both the technological and educat ional s t a t u s of t he t e r a i (and val ley)

region has been improving f o r over a decade.

L i t e r a t u r e suggests t h a t education s i g n i f i c a n t l y enhances farmers'

t echn ica l and a l l o c a t i v e a b i l i t y , and thus enables them t o a t t a i n rmtch

1 i

higher output i n technological ly advancing a g r i c u l t u r e areas than in a Y

i t r a d i t i o n a l area. There a r e no sound empirical evidence ava i l ab le a t I 1 p resent t o support o r r e j e c t t he f indings i n the context of Nepal. This

paper is t o i n v e s t i g a t e the content ion t h a t farmers' education has sub-

s t a n t i a l l y h igher payoff i n modernizit~g t e r a i than r e l a t i v e l y t r a d i t i o n a l

h i l l region. I f t h e empir ical evidence from t h i s study va l ida t e s the

content ion, i t would mean t h a t t he a g r i c u l t u r a l product iv i ty growth i n

Nepal can be acce lera ted by simultaneously inves t ing in the improvement

C of both farm technolugy and human c a p i t a l than e i the ; one separa te ly .

11. STUDY AREA AND SAMPLE CHARACTERISTICS

In a broad sense, Nepal can be divided i n t o two d i s t i n c t geographic

regions - namely, t h e t e r a i and t h e h i l l - f o r t h e purpose of t h i s study.

The fl.at and warm southern a r e a of t he country is know a s t h e t e r a i regiari ,

while the r e l a t i v e l y cool and h i l l y (or mountainous) middle and nor thern

p a r t of t h e country can be c a l l e d t h e h i l l region. The t e r a i reg ion has

been experiencing gradual improvement i n technology and education over a

decade while a major p a r t of t h e h i l l region (except t he va l l eys ) has

remained r e l a t i v e l y t r a d i t i o n a l even though the re has been improvement

i n i ts educat ional s t a t u s during t h e l a s t decade.

To determine the impact of education i n t h e modernizing t e r a i and

t r a d i t i o n a l h i l l , Bara d i s t r i c t i n t he c e n t r a l t e r a i is se l ec t ed t o re-

present t h e t e r a i region and Gorkha d i s t r i c t i n t h e western h i l l is c h o s e . ! i 41

t o represent t he h i l l r e g i o r r . Micro- level, c ross- sec t iona l d a t a a r e

! I col lec ted by interviewing 205 randomly se l ec t ed farmers of Bara and 149 i

! farmers of Gorkha d i s t r i c t s f o r t h e crop year 1979-80 (see Pudasaini , i I 1981 f o r d e t a i l e d d a t a c o l l e c t i o n methods). !

Underlying the s e l e c t i o n of t h e d i s t r i c t s a r e two c r i t e r i a : (1) re-

presenta t iveness and (2 ) l e v e l of technological innovation. . *

i Rice is the most important crop i n Bara, a s i t is i n the t e r a i re- i .

gion a s a whole. G L U C ~ cop In Gorkha, a s i t ii i n the ,-@+,# - - -9

h i l l region-as a whole. Gorkha d i s t r i c t , r i s i n g i r o n low, h i l l y areas

- 4/ Thus, the terms Bara d i s t r i c t and t e r a i region, and Gorkha d i s t r i c t

and h i l l region a r e interchangeably used i n t h i s study.

up t o high, mountainous regions, has been almost untouched by modern i n p u t s

(HYV seed, f e r t i l i z e r , pestm.cides, machines) and p rac t i ces , a s is the ma-

j o r par t of t h e t e r a i region. On t h e o the r hand, Bara d i s t r i c ~ in t h e w a r n

p la ins has been experiencing gradual introduczion of modern inpu t s and prac-

t i c e s f o r over a decade, as is t h e major pa r t of t h e t e r a i region. Thus,

t h e two d i s t r i c t s a r e expected t o provide a congenial s i t e f o r analyzing

the impact of education (and extension) on t r a d i t i o n a l ( h i l l ) and modern-

! i i z i n g ( t e r a i ) environments, respec t ive ly .

Important c h a r a c t e r i s t i c s of t h e sample farmers of the t e r a i (Bara)

1 and h i l l (Gorkha) regions ( d i s t r i c t s ) a r e repor ted i n Table 3. The farm

operat,orsV of t e r a i region has an average education (schooling) of 5.04

years and the opera tors of t h e h i l l regi.on has an average education of 4 - 1 8

years. The t e r a i farmer had about fou r contac ts with ail extension agent

during the year under study, while the farm producers i n the h i l l had o n l y

about one contac t during the same period. The t e r a i farmers spent RS 3,002

per farm o r RS 410 Fer bigha on modern inputs (HYV seed, f e r t i l i z e r , pes-

t i c i d e s ) while the sample farmers in the h i l l used modern inpu t s worth

RS 170 per iarm o r RS 155 per bigha. Mechanical inputs such a s t r a c t o r

and pumpset a r e employed by the a g r i c rs in the t e r a i whi le

no such innovation a r e u t i l i z e d by t h e h i l l f a r s e r s . This demonstrates *

t h a t the t e r a i farmers employ almost t h ree times a s much of the modern

inputs a s the h i l l farmers while the t e r a i farmerc a r e only s l i g h t l y more

educated than t h e i r h i l l counterparts .

The farmers of t h e t e r a i region hav6 much l a r g e r holdings and c u l t i - ?

vated areas than those i n the h i l l regia;. The sample farm opera tors of

oEh regions, on t h e other hand, have s imi l a r age and farmlng experience,

The h i l l farmers, however, have much l a rge r investments in l ives tock than

t h e i r t e r a i counterpar t s .

- - -- - - - - . .. - - - - - --

- - 9

Table 3. Characteristics of sample farmers of Terai and Hill regions, Nepal.

Terai Bill Characteris tics (Bara j (Gorkha)

= 5 N . , 1 9

Operator's education (yrs .) 5.04 4.18 (3.73) (3.53)

Extension contact (no) 3.93 0.76 (3.97) (2.21)

Land holding (bighas) 9.21 1.15 (11.16) (0.88)

Cultivated area (bighas) 6.75 1.05 (7.25) (0.73)

Modern inputs used (Rs) 3,002 170 (5,0091 (287)

Investment in livestock 2,145 4,276 (3,758) (3 ,Sob)

Investment in tractor 5,550 0 and pumps (Rs) (19,293) -

Operator's age (yrs.) 4 2 4 2 (13) (13)

operator's fanning experience 19 2 2 (yrs.1 (22) (13)

Operator's nonfarm work 10 30 (percent) (30) (46)

Total farm revenue (Rs) 28,884 10,806 (36,086) (7,698)

Figures in parentheses are standard deviations and those outside paranthese? are means: 1 hectare = 1.48 bigha; U.S. $1.00 = Rs 12.00.

r f

- - .r .5 - - * D

111. THE MODEL:

I To a t t a i n t h e s t i p u l a t e d o b j e c t i v e s , two s e p a r a t e bu t c l o s e l y i n t e r -

[ r e l a t e d econometric m e t ' As: t h e product ion and prof i t funct ions: a r e

employed i n t h i s paper i n a.'dition t o a t a b u l a r a n a l y s i s . The f i r s t p a r t

of t h i s s e c t i o n de sc r ibe s how engineer ing ( s i n g l e ou tpu t ) , g ro s s s a l e s ,

and va lue added product ion f u n c t i o n s can be u t i l i z e d t o measure t h e worker

and a l l o c a t i v e e f f e c t s of educat ion. The l a t t e r p a r t d i s cus se s how a

normalized r e s t r i c t e d p r o f i t f u n c t i o n can be employed t o t e s t t h e s ign i-

f i c a n c e of t h e worker ( t e chn i ca l ) and a l l o c a t i v e ef f eccs ( e f f i c i e n c i e s )

of educat ion (educated) .

( i ) Production Funct ion Mode?.,

Education c o n t r i b u t e s t o ou tpu t through t h e worker and a l l o c a t i v e

e f f e c t s . The a l l o c a t i v e e f f e c t h a s two components: input- a l loca t ion

and i npu t- se l ec t i on e f f e c t s . A product ton func t i on framewors ' (based

on Welch's work) demonstrates t h a t t h e marginal va lue product (MVP) of

educat ion es t imated from a v a l u e added production func t i on cap tures a l l

t h e t h r e e e f f e c t s - worker, i npu t- a l l oca t i on and i n p u t s e l e c t i o n . The i

i MVP of education from a g ros s s a l e s p r d u c t i o n func t i on measures only

t h e worker and i npu t- a l loca t i on e f f e c t s whi le t h e MW of educat ion from

an engineer ing ( s i n g l e crop, product ion f u n c t i con t a in s only t h e worker

e f f e c t . s -

Thus t he key t o measuring t he t h r e e e f f e c t s of educat ion is t o e s t i - - 'Z

mate t h e va lue added, g ro s s s a l e s and engineer ing product ion func t ions - - e -

5/ Refer t o sppendix IV f o r a d e t a i l e d d i scuss ion of t h e t h e o r e t i c a l aspec t of t h e product ion func t i on model.

t o d e r i v e t F e !ST of e d u c a t i o n from each of t h e func t ions . The d i f-

f e r e n c e i n che MVP from v a l u e added and g r o s s s a l e s f u n c t i o n measure t h e

i n p u t- s e l e c t i o n e f f e c t . The d i f f e r e n c e i n t h e W P from g r o s s s a l e s and

eng ineer ing f u n c t i o n r e p r e s e n t s t h e i n p u t- a l l o c a t i o n e f f e c t . The MVP -

of e d u c a t i o n from t h e eng ineer ing f u n c t i o n measures t h e worker e f f e c t .

A comparison of t h e e f f e c t s wi th- in and a c r o s s t h e r e g i o n s t h e n enab les

u s t o determine which of t h e t h r e e e f f e c t s i s more important i n techno-

l o g i c a l l y dynamic and t r a d i t i o n a l r eg ions .

6 / F o r e m p f r i c a l purpose, two s e p a r a t e e n g i n e e r i n r p roduc t ion func-

t i o n s of t h e f o l l v f n g form a r e e s t i n s t e d f o r each of t h e two regions:

where, i = t e r a i , h i l l r e g i o n s

4' Also two s e p a r a t e g r o s s s a l e s product ion f u n c t i o n s of t h e fo l lowing form:

and t .o s e p a r a t e v a l u e added product ion f u n c t i o n s of t h e form: - E

- 6 / Rice and maize a r e t h e most important ;raps of t h e t e r a i (Bara) and h i l l (Gorkha) r e g i o n s ( d i s t r i c t s ) . Thus, r i c e and maize p roduc t ion f u n c t i o n s r e s p e c t i v e l y r e p r e s e n t t h e eng ineer ing p roduc t ion f u n c t i o n s f o r terai and h i l l r eg ions*

a r e a l s o e s t i m a t e d f o r each of t h e two r e g i o n s .

Where ye is r i c e o r maize o u t p u t i n q u i n t a l s , Y is g r o s s s a l e s ( v a l u e

of t o t a l f a n p roduc t ion p l u s off - farm income) i n rupees. V i s v a l u e

added ( g r o s s sales minus c o s t of purchased i n p u t s ) i n rupees . L is t h e

market v a l u e of t o t a l c u l t i v a t e d l and i n rupees . L~ i s t h e market v a l u e

of l a n d ' u n d e r r i c e o r maize c u l t i v a t i o n i n rupecs . NF is man-years o f

a v a i l a b l e f a m i l y l a b o r . K is c a p i t a l (12 p e r c e n t of t h e t o t a l i n v e s t m e n t

i n l i v e s t o c k s , farm equipment and machines). A is age of farm o p e r a t o r

i n y e a r s . E i s y e a r s of s c h o o l i n g of farm o p e r a t o r . EX is i n t e r a c t i o n

between e d u c a t i o n and e x t e n s i o n . xe is t h e number of e x t e n s i o n c o n t a c t

i n r i c e o r maize. X is t o t a l e x t e n s i o n c o n t a c t s dur ing t h e c rop y e a r

(1979-1980). k i s t r a c t o r h o u r s equivalen&-I of machine u s e i n r i c e .

M is t r a c t o r hour e q u i v a l e n t of machine used d u r i n g t h e crop yea r . NH is

aandays of h i r e d l a b o r employed dur ing t h e c r o p y e a r . Nl ie t o t a l days of

h i r e d l a b o r emploired i n r i c e o r maize. B is t o t a l days of b u l l o c k employed

d u r i n g t h e c r o p year . F~ is ki lograms of f e r t i l i z e s ' a p p l i l d i n r i c e o r

maize. F is t o t a l f e r 6 i l i z e r a p p l i e d dur ing t h e krop yea r . BF is t o t a l

L/ I n &is s t d y , i n p u t used d u r i n g t h e c rop y e a r 1979-80 means t h e q u w - t i t 9 o f a g i v e n i n p u t employed i n r i c e , wheat and sugarcane i n Bara o r t h e q u a n t i t y of a i n p u t used i n maize, r i c e and wheat i n Gorkha - d u r g g t h e y e a r . T r a c t o r hour e q u i v a l e n t was c a l c u l a t e d by d i v i d i n g 8 t h e eum of expenses on t r a c t o r and pumpsets by hour ly t r a c t o r r e n t a l rate,-

?/ Quant i ty of f e r t i l i z e r w a s computed by d i v i d i n g t h e sum of expenses on complexal , u r e a and po tass ium s u l p h a t e f e r t i l i z e r s by p e r k i l o g r a m p r i c e of complexal.

days of family bullock employed during the crop year . DL is 1 i f c u l t i -

vated a r e a is a t l e a s t six bighas i n t he t e r a i o r a t l e a s t 1.54'b&bs

i n the h i l l an8 0 otherwise.

Spec i f i ca t ion of education and ex tens ioa i n l i n e a r form permi ts zezo

' a s a v a l i d observation. Many farmers in t h e a rea s tudied and some of them

i n my sample have no formal education o r extension con tac t s b u t have a

aon-zero productioa. Thus, education and extension i n t he operation&

models (1 t o 3 ) a r e spec i f i ed i n l i n e a r form. The est imated c o e f f i c 3 e a t s

ca11 be i n t e r p r e t e d a s t h e percentage change i n t he dependent v a r i a b l e for

a u n i t change in educat ion and extension.

( i i ) P r o f i t Function Model

The p r o f i t func t ion approach presents i t s e l f a s an a l t e r n a t i v e to

the production funct ion. Moreover, i t may a l s o be more appropr i a t e fo

determine the s ign i f i cance of t he worker ( technica l ) and a l l o c a t i v e

e f f e c t s ( e f f i c i e n c i e s ) of education f o r t h e following reasons. F i r s a y ,

t he normalized r e s t r i c t e d p r o f i t func t ion and input demand f u n c t i o n s are

func t ions of predetermined va r i ab l e s . They a r e econometrically beecu r

s u i t e d f o r est imation because est imation of such func t ions avoids p a s s i b h e

simultaneous equation b i a s . Secondly, i t p e n i t s t e s t i n g of hypotheses . *

concerning a l l o c a t i v e and worker ( t echn ica l ) e f f e c t s (ef f i c i e r ~ c i e s ) ob

education (educated) without-having - t o es t imate d i f f e r e n t types and Ermc- '3

t i o n s a s i n the case of proddction func t ion approach (1 t o 3 1. TMsdly, - -

t he p r o f i t and input demand Cynctions - est imated by seemingly u n r e l a t e d m

regress ion provide asymptot ical ly more e f f i c i e n t es t imates than t h e pro-

duction funct ion est imated by OLS. Fourthly, t h i s model t akes i n t o ac-

count t he d i f f e r ences i n technica l e f f i c i ency , a l l o c a t i v e e f f i c i e n c y an8

e f f e c t i v e p r i c e s and p e r m i t s t e s t i n g of hypotheses concern ing r e l a t i v e

economic ( a l l o c a t i v e and t e c h n i c a l ) e f f i c i e n c y d i f f e r e n c e s between t h e

9 / educated and i l l i t e r a t e f a n n e r s . A b r i e f discussion-- of how a p r o f i t i

f u n c t i o n approach c a n be employed t o t e s t hypotheses p e r t a i n i n g t o t h e

worker and a l l o c a t i v e e f f e c t s f o l l o w s .

Le t t h e normalized r e s t r i c t e d p r o f i t f u n c t i o n (3) and i n p u t demand

f u n c t i o n s (5-7) f o r h i r e d l a b o r (NH), b u l l o c k (B) and f e r t i l i z e r (F) fo r

l o / . t h e two r e g i o n s b e .

The theory under ly ing t h e g r o f i t f u n c t i o n approach is w e l l d i s c u s s e d i n l i t e r a t u r e (Lau and Yotapoulos 1971, Yotopoulos and t a u 1973 a d 1979, P u d a s a i n i 1981). T h i s s e c t i o n p r e s e n t s on ly 6he o p e r a t i o ~ . a l p r o f i t funac t ion moilel u t i l i z e d t o test hypotheses c & c e r n i n g t h e wgrker and a l l o c a t i v e e f f e c t s of educa t ion . -

w

'2' *burning an a d d i t i v e e r r o r w i t h z e r o e x p e c t a t i o n a n e f i n i t e v a r i a n c e and t h e co- var ience of t h e e r r o r s of two e q u a t i o n s f o r t h e same farm t o b e non-zero w h i l e t h e co- var iance of t h e e r r o r s of two e q u a t i o n s cor respond ing t o d i f f e r e n t farms t o be z e r o , Z e l l n e r ' s a s y m p t o t i c a l l y e f f i c i e n t (seemingly u n r e l a t e d r e g r e s s i o n ) method was employed f c r t h e j o i n t eo t ima t i o n of t h e o p e r a t i o n a l ~ o d e l s (4-7) .

* where, i = t e r a i , h i l l and n is a r e s t r i c t e d p r o f i t normal ized by t h e

ou tpu t p r i c e . The r e s t r i c t e d p r o f i t is t h e d i f f e r e n c e between t h e g r o s s

s a l e s minus t h e c o s t of v a r i a b l e i n p u t s of h i r e d l a b o r , f e r t i l i z e r and

bul lock . The v a r i a b l e s L, NF, K, A, E and X a r e a s de f ined e a r l i e r i n

p roduc t ion f u n c t i o n . ED is 1 i f educated farmer and z e r o o t h e r v i s e .

EDo is 1 i f i l l i t e r a t e f a rmers and z e r o o the rwise . XD is 1 i f fa rmers

have e x t e n s i o n c o n t a c t and z e r o o the rwise . XD is 1 i f f a n n e r s have no 0

e x t e n s i o n c o n t a c t and z e r o o the rwise . The v a r i a b l e s Pn, Pb and Pf a r e

r e s p e c t i v e l y p r i c e of l a b o r , b u l l o c k and f e r t i l i z e r normal ized by t h e

ou tpu t p r i c e . S u p e r s c r i p t s E and U d e n o t e educated and i l l i t e r a t e f a r-

mers r e s p e c t i v e l y . Economic e f f i c i e n c y c o n s i s t s of two components: t e c h n i c a l and

a l l o c a t i v e ( p r i c e ) e f f 5 c i e n c y . Fanners a r e a l l o c a t i v e l y e f f i c i e n t i f

they maximize p r o f i t ( i . e . equa te marginal v a l u e p roduc t s of v a r i a b l e

C i n p u t s t o t h e i r r e s p e c t i v e o p p o r t u n i t y c o s t s ) and t h e maximization o f f i p r o f i t is r e f e r r e d t o as a b s o l u t e a l l o c a t i v e e f f i c i e n c y h e r e a f t e r . The B I h y p o t h e s i s t h a t both educated and i l l i t e r a t e f a rmers a r e abso- t

i l u t e a l l o c a t i v e e f f i c i e n t is t e s t e d by imposing r e s t r i c t i o n s (8) i n 1

r w The h y p o t h e s i s (8) could be r e j e c t e d i f e i t h e r one of t h e group f a i l s to

maximize p r o f i t . Thus, t h e hypotheses t h a t t h e educated f a r m e r s a r e

a b s o l u t e a l l o c a t i v e e f f i c i e n t :

* * * * * Ho: a N f a N ; a B - a B ; a F - a F

and t h a t t h e i l l i t e r a t e s are absolu te a l l o c a t i v e e f f i c i e n t

- a r e a l s o t e s t e d s e p a r a t e l y t o determine whether t h e educated o r t he illi-

t e r a t e s f a i l t o maximize p r o f i t s .

The educated and i l l i t e r a t e farmers can be d i f f e r e n t in terms of

economic e f f i c i e n c y i f they do not have t h e same technica l e f f i c i e n c y

and/or f a c e d i f f e r e n t p r i c e s even i f they a r e abso lu t e a l l o c a t i v e e f f i c i e n t , They

can have d i f f e r e n t economic e f f i c i ency i f they a r e a l l o c a t i v e i n e f f i c i e n t

even i f they have the sama t echn ica l e f f i c i e n c y and face t h e same p r i ce s .

The p r o f i t func t ion model ' takes i n t o account t he d i f f e r ences in t echn ica l

e f f i c i e n c y , a l l o c a t i v e e f f i c i e n c y and e f f e c t i v e p r i c e s and permits a

test of t h e r e l a t i v e economic e f f i c i e n c y d i f f e rences between t h e educated

and i l l i t e r a t e fanners . Consequently, t h e hypothesis of equal r e l a t i v e

economic e f f i c i e n c y of educated and i l l i t e r a t e s is t e s t e d as:

Since higher economic e f f i c i e n c y of educated farmers can emanate from

t h e i r being technica l ly andlor a l l o c a t i v e l y nore e f f i i i e n t than the

i l l i t e r a t e s , t h e hypothesis of t he equal r e l a t i v e a l l o c a t i v e e f f ic iency: - - .* L *E *=' ipE * U *= * U

= a a = a N ' B B ; a F - F

a and t h e hypu&esis of t he equal r e l a t i v e a l l o c a t i v e and t e c h n i c a l e f f i -

ciency :

. -- --OF- ---- - .- - -- - -- -. -- - - .- .

. - -- - ------A - - -. - - - -- . .

(13 1 HO: dE = O

and

a r e a l s o t e s t e d t o determine whether t h e h igher r e l a t i v e economic e f f i -

c iency of t h e educated comes from the5r being a l l o c a t i v e l y and /or tech-

n i c a l l y more e f f i c i e n t than t h e i l l i t e r a t e s .

S ince t h e i s s u e of , ? t u r n s t o ' s c a l e ha s important po l i cy imp l i ca t i ons

t h e hypothes i s of cons t an t r e t u r n s t o s ca l e :

(14 1 Ho: BL + BK + BN = 1

is a l s o t e s t e d t o determine i f a cons t an t r e t u r n t o s c a l e p r e v a i l s in

t e r a i and h i l l r eg ions of Nepal.

I V . THE EMPIRICAL FINDINGS:

The f i r s t p a r t of t h i s s e c t i o n r e p o r t s t h e r e l a t i o n s h i p between

educa t ion and o t h e r v a r i a b l e s such as income o r modern inpu t use . The

second p a r t p r e s e n t s t h e r e s u l t s based on t h e e s t ima t i on of eng ineer ing ,

g ro s s s a l e s and va lue added product ion f u n c t i o n s and draws conc lus ions

concerning t h e r e l a t i v e importance of t h e worker and a l l o c a t i v e e f f e c t s . I a

The thzrd p a r t d e s c r i b e s t h e f i nd ings from t h e p r o f i t f unc t i on model

p e r t a i n i n g t o t h e economic e f f i c i e n c y d i f f e r e n c e s between t h e educated - - and i l l i t e r a t e farmers . The f o u r t h p a r t . F i s c u s s e s th? c o n t r i b u t i o n of

educat ion t o a g r i c u l t u r a l p r o d u c t i v i t y id modernizing and t r a d i t i o n a l *

environments . m

( i ) Re l a t i onsh ip Between Education and Other Va r i ab l e s . - Education is no t 1 f r e e good. Costs i n terms >f phys i ca l resources

i and time a r e incur red i n t h e p rocess of ach iev ing educat ion, and t h e c o s t s

. involved i n t h e pu r su i t of learn ing increase with the l e v e l of oducation.

Thus, any r a t i o n a l demand f o r increased education must be a s soc i a t ed with

higher expected earnings. The more educated farmers can a t t a i n higher

income by adopting modern i n p u t s and p r a c t i c e s toge ther with op t iona l ly

a l l o c a t i n g t h e new and e x i s t i n g resources among competing uses. Edu-

c a t i o n can be expected t o improve farmers1 dec is ion making a b i l i t y con-

cerning inpu t s e l e c t i o n and a l l o c a t i o n s i n c e i t may enhance t h e i r a b i l i t y

t o obta in , analyze, and use economically u s e f u l information about inputs ,

p r a c t i c e s and market condi t ions. I n t h i s s e c t i o n r e s u l t s from a t abu la r

ana lys i s is presented t o examine i f d i f f e r e n t l e v e l s - primary, secondary,

high school and co l l ege - of education and o the r va r i ab l e s - such a s farm

revenue, modern inpu t s vse, c h i l d mor t a l i t y , extension con tac t s - a r e

i n t e r r e l a t e d i n t h e terai and h i l l regions.

The income of t h e farmers , viewed i n teras of t o t a l farm revenue,

increased wi th t h e l e v e l of farm opera tors ' educat ion i n both t h e t e r a i .

and h i l l regions (Tables 4 and 5 ) . The income of t h e educated farmers,

viewed even i n terms of revenue per bigha, is h igher than t h a t of illi-

t e r a t e s i n both regions. Moreover, the revenue per bigha a l s o cons i s t en t ly

ro se with t h e increase i n t h e l e v e l of farm opera tors ' educat ion i n both * a reas (except f o r t he drop i n t he secondary l e v e l r e l a t i v e t o t he primary

l e v e l i n the t e r a i ) . The t o t a l farm revenue (revenue per farm) is m ~ c h ' ?

higher f o r a given l e v e l of educat ion i n teraiu/ than i n h i l l while' - - *

? * .. - This is larg;ly because farms a r e much l a r g e r i n t he t e r a i t h a n -i n t he h i l l region. However, i t may a l s o be p a r t l y because education con t r ibu te s more t o t he farm revenue i n t h e dynamic t e r a i than i n t r a d i t i o n a l h i l l a reas .

T a b l e 4 . R e l a t i o n s h i p between educat ion and o t h e r v a r i a b l e s i n T e r a i Region, Nepal, 1979-1980.

Childhood operator*^ T o t a l Revenue F a t h e r ' s economic E x t e n ~ i o n C u l t i v a t e d Modern Chi ld e d u c a t i o n a l revenue p e r blgha educa t ion c o n d i t i o n c o n t a c t a r e a i n p u t s d e a t h l e v e l (Rs) * (Rs 1 ( y r s . (**I (no. (b igha) ( ~ d b l s h d (no.)

I l l i t e r a t e 10,875 N = 37 (6,715)

Secondary 26,005 N - 57 (20,208)

High ~ c h o o l 37,040 N = 45 (44,999)

r u ' Collcge 78,768

N - 11 (70,346)

E n t i r e populnt lon 28,884 4,336 1.89 1.83 3.94 6.75 410 1.39 N - 205 (36,386) (1,911) (2.21) (0.62) (3.97) (7.26) (332) (1.74)

. . * Note: The numbers i n p a r e n t h e s e s a r e s t a n d a r d d e v i a t i o n s and those wi thou t p a r e n t h e s e s a r e means.

b u n i t s of meansurcment: RR 12.00 = US $1.00 1 bigha - 0.68 h e c t a r e s **Clllldl~ood economic condition was meaeurecl a s 1 - poor, 2 - f a i r , 3 - e x c e l l e n t .

i

I Q hk 1 8

Table S. Relationship between education and other variables i n H i l l y Reg i o n , Nepal, 1979-1980.

Childhood Operator's Total Revenue ra ther ' s economic Extension Cultivated ! sderr. A i l d educational revenue per tiiglla educet ion condition contact :I rea i : ucath level (Us) * (Rg) ( Y ~ s * (**I (no* (bigha) (mibighi3 (no. )

I l l i t e r a t e 6,920 9,861 0.61 1.42 0.24 0.80 69 1.73

i N = 33 (6,045) (9,203) (1.66) (0.56) (0.66) (0.52) (88) (1.99)

Primary 11,876 11,000 1.48 1.64 0.66 1.19 139 1.30 N = 61 (7,936) (4,978) (1.57) (0.52) (1.28) (0.84) (229) (1.36)

I

1 Secondary 11,842 11,663 1 . 7 1 1.54 0.58 1.03 199 0.58 1 N 24 (3,951) (5,708) (2.01) (0.51) (1.56) (0.54) (223) (0.83)

High school 13,735 13,103 2.31 1.81 1.69 1.07 264 4 N = 26 (10,529) (.- . B 3 ) (2.46) (0.40) (4.57) (0.84) (324) (0.76) 0 .

Co 1 I cp! 13,506 13,665 1.80 1. RO 1.60 0.99 123 0.20 I N 1 5 (2,106) (3,776) (1.64) (0.45) (0.55) (0.37) (144) (0.45) . .

Ent t r c pol'ulilt ion 11,807 11,276 1.48 1.61 0.77 1.05 155 1.09

N 149 (7,698) (6,264) (I . . 88) (0.52) (2.22) (0774) (231) (1.44)

Note: The numt)c?rs In parcntl~escs a r e utandard dcvia:ions and tllose without parenthese are means.

*Units of mcasurcmcnt: Rs 12.00 - US $1.00 1 bigha = 0.68 llectclres **ClrLldl~ood econornlc condition was mcnsured a s 1 poor, 2 = Pair, 3 = excel lent .

gu f

revenue per bigha is higher i n h i l l3 than i n t e r a i region. The r e s u l t

supports the co~ l t en t ion t h a t a pos i t i ve co r re l a t ion e x i s t s between t h e

l e v e l of earnings and the l e v e l s of education. However, t he educated

and i l l i t e r a t e farmers o r t he farmers with d i f f e r e n t l eve l s of education

d i f f e r with each o ther i n c h a r a c t e r i s t i c s o ther than education such as

cu l t iva t ed a rea , childhood economic condit ion o r f a t h e r ' s education.

i i 1 - Thus, one must be c a r e f u l not t o a t t r i b u t e the t o t a l earning d i f fe rn t ia f .

I t between educated and i l l i t e r a t e s o r between farmers with d i f f e r e n t l e v e l s

t of education t o education alone. L

I F The use of modern inpu t s ( f e r t i l i z e r , pes t i c ides and KYV seed)

S

8 and extension se rv ices increased cons i s t en t iy wi th t h e l e v e l of farm i

f opera tor ' s education i n t e r a i region. Even though t h e p a t t e r n of in-

I c rease i n t h e use of extension and mddern input was not a s cons is ten t i n

the h i l l a s i t is i n t e r a i , a l l l e v e l s of educated farmers a r e employing

more modern inpu t s and a l s o has higher extension contact than illiterate

t farmers. For each l e v e l of opera tor ' s %ducation t h e number of extensfon

contac ts and t h e l e v e l of t he use of modern inputs a r e much higher i n

t e r a i than i n h i l l region. The f indings i n d i c a t e th ree thicgs. F i r s t ,

e i t lends support t o the hypothesis t h a t education makes farmers inpovat ive

(Chaudharix Second, i t enhances farmers' innovative a b i l i t y mlrch more

i i n a technological ly dyna6ic a g r i c u l t u r e than i n a t r a d i t i o n a l area.

.! Thirdly, t h e educated farmers i n t e r a c t b e t t e r v i t h t h e extension and -

r 12 / - i Farmers i n the h i l l y region (Gorkha) have extremely small c u l t i v a t e d

holdings. A s a r e s u l t , they do very in t ens ive farming and have, in genera l , higher income per un i t of land, However, almost a two- and-one-half fo ld hfgher revenue per bigha i n the case of Gorkha a s compared t o Bara is expected t o be a r e s u l t of downward b ia s in t h e reported land a r e a i n Corkha s ince a land survey underway i n the area is not ye t complete and farmers did not know the exact s i z e of t h e i r Farms.

o t t ir agencies.

Not su rp r i s ing ly , an inve r se r e l a t ionsh ip is found t o e x i s t between

the l e v e l of opera tor ' s education and c h i l d mor ta l i t y i n both t h e regions.

On t h e o the r hand, t he socii-economic o r background va r i ab le s such a s

f a t h e r ' s education and childhood 'economic condi t ions a r e p o s i t i v e l y and

d i r e c t l y r e l a t e d with t h e completed l e v e l s of opera tor ' s education i n

both areas. Childhood e-onomic condit ion of farm operators i n t e r a i is

r e l a t i v e l y j e t t e r than t h e farm opera tors of h i l l region. S imi l a r i ly ,

farm operators ' f a t h e r ' s education l e v e l i s a l s o s l i g h t l y higher i n :he

case of t e r a i r e l a t i v e t o those opera tors i n h i l l region.

( i i ) Production Function Est imates, Al loca t ive and Corker E f f e c t s of

Education.

The es t imates from engineering, gross s a l e s and value added pro-

duction funct ions f o r t h e t e r s i and h i l l regions a r e contained i n t a b l e s

6 and 7 respec t ive ly . The production funct ion r e s u l t s a r e reasonable

i n terms of s igns and s t a t i s t i c a l s ign i f i cance of most of the est imates .

A l l the funct ions suggest t h a t education has a pos i t i ve cont r ibut ion t o

a g r i c u l t u r a l output. However, extension has in s ign i f i can t c o e f f i c i e n t

regard less of i t s s ign i n both regions and appears t o suggest one o r both . I

of the fo l lowi~ig . ~ i r s l , t h e ob jec t ive df the extension program is t o f a-

c i l i t a t e farmers t o overcome technica l and economic c o n s t r a i n t s fac ing them - - by providing technica l -information about modern inputs (tgchniques) and - by helping them t o g e t acces t o c r e d i t and o ther resourcc!s i n due time.

I t Due to' inadequate t r a in ing and experience of extension a g t n t s , under

s t a f f i n g and lack of due coordinat ion betveen extension research, extension

Table 6 Est imates from engineering, gross s a l e s and value added production functions, t e r a i region, Nepal

Independent Engineering Gross Value Variables ( r ice) Szles Added

Land: L 0.382*** 0.303**k 0.415*** (0.051) (0.054) (0.066)

P Labor: NP 0.228*** 0.252*** (0.054) (0.058)

H Labor: NH 0.172** 0.120*** (0.034) (0.038)

Capital: K

Bullock: B

P Bullock: BF

F e r t i l i z e r : P

Education: E

Extension: X

Age: A

Size: DL i

Constant -2.339

R~ 0.85b6

The f igures i n parentheses are standard e r * S i m i f i c a n t a t 10-percent l e v e l **Significant a t 5-percent l e v e l ***Significant a t 1-percent l e v e l

. rors of the est imates.

Table I. Estimates from engineering, gross s a l e s , and value added production func'ions, h i l l y region, Nepal

Indeperdent Engineering Cross Value Var iables (maize) Sa les Added

Land: L 0.250*** 0.169*** 0.220*** (0.072) (0.060) (0.060)

F Labor: NP 0.160 0.274*** 0.298** (0.099) (0.065) (0.071)

H Labor: NH 0.018 0.014 - (0.033) (0.018)

Capi ta l : K 0.195*** 0.183*** ' 0.209** (0.062) (0.041) (0.044)

F Bullock: BF g - F e r t i l i z e r : F 0.048

(0.047)

Education: E 0.022 (0.017)

Extension: X 0.212 (0.215)

Age: A -0.150 (0.187)

Size: DL -

Col~e t a n t -2.227

- The f i g u r e s i n parentheses are standard e r r o r s o? t h e csti,mates. *Signi f icant a t 10-percent l e v e l **Signif icar .~ a t 5-oercent l c v e l **Significant a t 1- percent l c v e l

research , ex tens ion and c r e d i t and o the r agenc ies , t he ex tens ion program!

i n Nepal h a s n o t been ve ry e f f e c t i v e , and the nons ign i f i c an t c o e f f i c i e n t i

may be ~ e f l e c t i n g t h e i ne f f ec t i venes s of t h e program. Second, t h e con-

ven t iona l way of def in ing extension v a r i a b l e a s a number of con t ac t s may

be inadequate . A nega t ive c o e f f i c i e n t of educat ion - extens ion in te rac t%-

term (EX) weakly suppor t s t h e conten t ion t h a t e d ~ c a t i o n an ' . zx tens ion

a r e s u b s t i t u t e s i n farm dec i s ion making process i n the t e r a i whi le t h e

c o e f f i c i e n t does no lend much support f o r o r a g a i n s t t he hypothesis i n

t h e h i l l r eg ion .

F e r t i l i z e r has s i g n i f i c a n t l y p o s i t i v e con t r i bu t i on t o ou tpu t i n t h e

t e r a i whi le i t does no t have a s i g n i f i c a n t i npac t i n t h e h i l l a rea .

There has been a s v b s t a n t i a l l y g r e a t e r i n t roduc t i on of o t h e r i n n o v a t i o n s

(HYV's, t r a c t o r s , i r r i g a t i o n o r pumpsets) i n a d d i t i o n t o f e r t i l i z e r in

t h e t e r a i r e l a t i v e t o t h e h i l l s . Also, ex tens ion contac t and educa t ion

l e v e l of fa rmers have seen h igher i n t h e t e r a i . Given t h e a v a i l a b i l i t y

of t h e whole package of t h e technology and h ighe r s k i l l (educat ion and

ex tens ion) , t h e fa rmers i n terai appear t o have made proper s e l e c t i o n and

more e f f e c t i v e use of modern i n p u t s inc lud ing f e r t i l i z e r . Age, a proxy

f o r exper ience , a l s o has a weak p o s i t i v e i n f l uence i n farm produc t ian

i n both reg ions . Larger farms (DL) a r e s i g n i f i i a n t l y more e f f i c i e n t C

( t e c h n i c a l l y ) than t h e smal l farms i n t e r a i v h i l e they a r e no t s i gn i f i e a r roky

d i f f e r e n t from t h e small ones in the h i l l region. - - The p a t t e r n of t h e r e s u l t remafns unchanged even when t h e engizecr-

- ,

ing , gros s s a l e s -and va lue added production f u n c t i o n s f o r te ra i age 8) w m

and h i l l (Table 9 regions a r e es t imated by in t roduc ing fou r l e v e l s o f

education - p r i m a r y (PE), secondary (SE), high school (HE) and c o l l e g e CCE]

- and t h r e e l e v e l s of extension - XTl (one t o s i x c o n t a c t s ) , XT2 ( s i x ta

T a b l e a . Estimates from engineering, gross s a l e s and value added p r o d u c t f o ~ ~ funct ions with d i f fe ren t l eve l s of education, t e r a i region, Hepal

Independent Engineering Gross Value -

Variables ( r i ce ) Sales Added - Land: L 0.386*** 0.299*** 0.413***

(0.051) (0.054) (0.066) F Labor: NF 0.266*** 0.261*** 0.363*

(0.054) (0.058) (0.083) EI Labor: NfI . 0.172*** 0.121*** -

(0.034) (0.038) - Capital: K 0.053*** 0.062*** 0.066*-

(0.016) . . (0.018) (0.025) Bullock: B 0.048 -0.057 -

(P 424) (0.043) - F Bullock: BF - - -0.014

o - (0.057) Fe r t i l i z e r : P L. Usa'- 0.153*** -

(0.021) (0.034) - I Pedu: PE -0.008 0.074*** ' 0.102** i (0.025) (0.027) g (0.039) i , Sedu: SE 0.005 0.030** 0.051- f (0.014) (0.015) (0.021) I Hedu: "XE 0.003 0.02 6*** 0.036**

(0.010) (0.010) (0.014) Cedu: CE 0.020* 0.044*** 0.063*+

(7.011) (0.012) (0.016) Extension: X 0.003 - o

(0.015) - - Ext 1: XT1 - -0.001 0.001 - (0.015) (0.022) Ext 2: XT2 - -0.010 -0.012 - (0.010) (0.014) Ext 3: XT - -0.015** -0.029**

3 - (0.008) (0.011) Age: A 0.026 0.128 0.157

(0.089) (0.097) (0 139) Machine: M 0.010 -0.010 -

(0.018) (0.014) - Size: DL 0.233 0.267*** 0.345***

. (0.080) (0.088) 6 (0.121)

Constant -2.354 3.665 3.057

Ft2 0.8589 0.8467 , 0.6919

F 92.0 64.9 33.0

w - a The f igures i n parentheses a r e standard e r r & oE the estimates.

1 *Significant a t 10-percent l eve l **Significant a t 5-percent l eve l

I ***SigniSicant a t 1-percent l eve l P

w

Table 9 Estimate8 from engineering, g ross s a l e s and value added prodr:ction funct ions with d i f f e r e n t l e v e l s of education, h i l l y region, Nepal

IndepenCent Engineering Gross Value Variable (maize) Sales Added

Land: L

F Labor: NF

H Labor: NEI

Capital : K

Bullock: B

P Bullock: BF

F e r t i l i z e r : F

Pedu: PE

Sedu: SE

Hedu: HE

Cedu: CE '*'-

Extension: X

Ext 1: XT1

Ext 2: xT2.

Ext 3: XT3

Age: A

Size: DL

Constant .)

- he f i g u r e s In parentheses a r e s tandard e r r o r s of t h e e s t i d t e s . E Sign i f i can t a t 10-percent l e v e l .

* * S i g n l i c a n t a t 5-percent l e v e l ***Significant a t 1-percent l e v e l

nine contac ts ) and XT3 (more tha~c n ine contac ts ) . A l l l e v e l s of education

genera l ly have p o s i t i v e and s i g n i f i c a n t contr ibut ion t o farm output i n

both regions. Regardless of the l eve l s of contacts , extension has no

s i g n i f i c a n t impact i n h i l l region, but more than n ine extension contacts

have negat ive influence on the output i n t e r a i . It may be because t h a t

i n the absence of a coordinated and e f f e c t i v e extension rogram the

increased extension.contact may simply confuse the farmers o r take away

t h e i r time t h a t they may otherwise u t i l i z e i n productive a c t i v i t y .

The worker and a l l o c a t i v e e f f e c t s of farm operators education a r e

reported i n t a b l e 10, Based on t h e t a b l e th ree d i s t i n c t observat ions can

be made. F i r s t , both the worker and a l l o c a t i v e e f f e c t s of education sig,

n i f i c a n t l y cont r ibute t o a g r i c u l t u r a l otitput i n both the modernizing t e r a i

and r e l a t i v e l y t r a d i t i o n a l h i l l region. Second, the input- al locat ion

e f f e c t of education is the most important cont r ibutor t o tbe output i n

b o t h regions. Since the a l l o c a t i v e e f f e c t compr4ses both the input-al-

locat ion and input- select ion e f f e c t s , i t is obvious tha t educat ion cont r i-

butes much more t o the output through a l l o c a t i v e e f f e c t than through

i t s worker e f f e c t G I i n both regfons. Of the components of a l l o c a t i v e

e f f e c t , both the input- al locat ion and input- select ion e f f e c t s s u b s t a n t i a l l y

cont r ibute i n the dynamic t e r a i while the l a t t e r e f e c t is almost non- . t

1 4 / s i g n i f i c a n t r e l a t i v e t o t h e former i n the h i l l r e g i o r . Third, a l l

- - ' This f inding is consibtent with Huffman's and ~ c h u l t r ' s , 1975 s tud ies .

- 14' Cfven the prevalence =f t e r r ace farming, s o i l erosion and o the r pro- blems, the h i l l agr i@ture is q u i t e complex. However, t he in t ro- duction of package of technology has been very l imited i n the region because of the u n a v a i l a b i l i ~ y of technology su i t ed f o r high a l t i t u d e a reas , high t ranspor ta t ion c o s t , low savings and unava i l ab i l i t y of c r e d i t , lack of knowledge e t c . Thus, the predominance of input-al- locat ion and lack of an important input- select ion e f f e c t is cons i s t en t with the observation.

Table 10. The worker and allocative effects 02 farm operator's education, terai and hill regions, Nepal (in rupees).

Effect Terai (Bara)

Elill (Gorkha)

Total (I + 11) 1,002 563

(I) Worker-

(a) input-Allocat ion

(b) Input-Selection

Standard errors in parentheses. * Significant at 1 percent level. Tablell. The worker and allocative effects .kf different levels of farm operator's education, terai and hill regions, Sepal (in rupees).

Education Level Primary Secondary_- High Schgg College

Effect \ Terai Hill Terai Hill Terai H i l l Terai H i l l .

Total (I -i- 11) 2,164 856 1,083 627 763 541 1,283 620

(I) Worker -112* 4* 700 21* 4 3 * 29* 279* 7* I i (10) (0) (6) (2) (41 (2) (25) (1) i i (11) Allocative ,2,276 852 1,013 606 720 512 1,004 .614

; - (a + b)

I (a) Input-Allocation 2,220* 9 3 P 797* 7.11" 709* 522* 992* 623s

i (194) (55) (70) (43) (62) J31) (88) (36) - 8 - (b) Input-Selection 56 -85': b

216*-12 5* 11 '210 12 -9 k - (45) (9) ( 2 8 ) (8) (15) ,(!&I - (26) ( 5 )

Standard errors of the estimates in parenthcs~s. * Significant at 1 percent l e v e l .

e f f e c t s of education a r e higher i n t e r a i r k l a t i v e t o h i l l region. fm

other words, educat ion 's cont r ibu t ion t o a g r i c u l t u r a l output is much

higher i n a modernizing environment than i n a t r a d i t i o n a l one. Even

though both e f f e c t s a r e s t a t i s t i c a l l y s i g n i f i c a n t , education cont r ibmzes a much more t o output by improving fanners a l l o c a t i v e a b i l i t y ( a l l o c a t L u

f e f f e c t ) r a t h e r than by enhancing t h e i r d i r e c t output (worker e f f e c t ) h

both environments. It is important t o no te t h a t education enhances Ear-

mers' a l l o c a t i v e a b i l i t y (e f f ic iency) i n a changing a g r i c u l t u r e ( t e r a

by improving t h e i r a b i l i t y t o introduce r i g h t i npu t s ( including tech--

g i c a l l y b e t t e r ones) and a l s o by enhancing t h i e r capaci ty t o e f f i c i e n a y

a l l o c a t e t h e new and e x i s t i n g inputs among cospet ing uses. However, jk

improves farmers ' a l l o c a t i v e a b i l i t y i n a t r a d i t i o n a l a g r i c u l t u r e ( h f m

by mainly improving t h e i r capac i ty t o e f f i c i e n t l y a l l o c a t e given res-es

among competing uses.

I'he f i n d i a g s t h a t both e f f e c t s s i g z i f i c u l t l y cont r ibu te t o t h e me-

put , the a l l o c a t i v e e f f e c t of education surpasses t h e worker e f f e c t ad

each of t he th ree e f f e c t s a r e higher i n t he t e r a i remains unchanged

even f o r each of t he fou r l e v e l s of education - primary, secondary,

I high school and co l l ege - ( t a b l e l l ) . The input- se lec t ion eEfect of e b

l e v e l of education is p o s i t i v e i n the t e r a i , while the same is not tm L

i n the h i l l region. It is genera l ly regarded i n Nepal t h a t t h e r e a r e

few modern inpu t s su i t ed f o r the h i l l region. The absence of i n p u t - s a -

t i on e f f e c t i n the region is cons is ten t with t h e observation. - ( i i i ) Al loca t ive and Techn%al E f f i c i enc i e s of Education from P r o f i t

- I

Function.

The t e s t s of h y p e r h e w ~ a r r t h g . e c o n o n i c e f f i c i e n c y d i f f e r e n c e s

between the educated and i l l i t e r a t e farmers of t he t e r a i and h i l l regfanas

Table 12; Testing o'f hypotheses of equal econoaic efficiency of educated and illiterate fanners for total fan, Bara'and Gorkha Districts

Nepal

Hypot hese Computed F-Ratios -

Bara dorkha

price efficiency of both F(6,804) = 7-72) F(6.580) 5.230 educated and illiterate

Absolute price efficiency of educated

Absolute price efficiency of illiterate

Equal relative economic efficiency

Equal relative price efficiency

Equal relative price and technical efficiency

Constant returns to scale

Note: Critical F-ratios are as follows:

a r e repor ted i n t a b l e 12. The hypotheses of absolu te p r i c e e f f i c i e n c y

of educated and/or i l l i t e r a t e s (hypotheses 1-31 a r e r e j ec t ed i n both

regions. The t e s t i n d i c a t e s t h a t n e i t h e r t h e educated nor t h e i l l i t e r a t e s

a r e a b l e t o maxh ize p r o f i t i n t h e sense of equat ing marginal va lue pro-

duct of v a r i a b l e i npu t s (h i red l abo r , bul lock and f e r t i l i z e r ) tc -:ir

respec t ive opportuni ty c o s t s in t h e yea r under study. It may be Jecause

both groups of fanners a r e introducing modern inpu t s i n varying degrees

and over d i f f e r e n t period of time i n addi t ion t o f ac ing weather o r mar-

k e t f l u c t u a t i o n s of varying degrees. Thus they may be i n t he process

1 of ad jus t ing t o d i s e q u i l i b r i a , and t h e c ros s s e c t i o n a l da t a u t i l i z e d i n

t h i s s tudy may no t have been a b l e t o t ake i n t o account t h e dynamic ad-

justment process .

f The t e s t of equal r e l a t i v e economic e f f i c i e n c y hypothesis is rej ec t ed

i n favor of higher economic e f f i c i ency of t he educated i n both regions.

I The hypothesis of equal r e l a t i v e a l l o c a t i v e and t echn ica l e f f f c i ency is

I a l s o r e j e c t e d i n favor of higher a l l o c a t i v e and technica l e f f i c i ency of

t h e educated i n both regions. However, t h e hypothesis of equal r e l a t i v e

a l l o c a t i v e e f f i c i e n c y is r e j e c t e d i n t he h i l l region while i t is not

r e j e c t e d i n t h e t e r a i . The t e s t s of t he r e l a t i v e e f f i c i ency hypotheses

demonstrate t h a t t h e educa,ted farmers a r e more e c o n o ~ i c e f f i c i e n t r e l a t i v e .

t o t he i l l i t e r a t e s i n both regions. The t e s t f u r t h e r d i sp lay t h a t t he

higher r e l a s i v e economic e f f i c i e n c y of t h e educated i n the h i l l region

'4 i s . a result 'of t h e i r being both more t echn ica l and a l l o c a t i v e e f f i c i e n t - - thar, the i 4 t e r a t e s . But t he higher economic e f f i c i ency of t h e educated E

I - i n the t e r a i emanates mainly from t h e i r being t echn ica l ly more e f f i c i e n t

rkan the i l l i z e r a t e s . I n o the r words, i t means t h a t education has a si'g-

n i f i c a n t worker e f f e c t but a weak a l l o c a t i v e e f f e c t i n t h e t e r a i whi le

both e f f e c t s a r e s i g n i f i c a n t i n t he h i l l . This p r o f i t f unc t ion based

f i nd ing is s l i g h t l y d i f f e r e n t than the product ion funct ion r e s u l t s i n t h a t

t h e l a t t e r i nd i ca t ed t h a t educat ion has a s i g n i f i c a n t a l l o c a t i v e e f f e c t

even i n t h e terai region.

Given t h e widelyheld view t h a t educat ion enables farmers t o more

quickly a d j u s t t o d i s e q u i l i b r i a , t h e educated i n t h e modernizicg t e r a i b -

were a l s o expected t o possess higher a l l o c a t i v e e f f i c i ency r e l a t i v e to

t h e i l l i t e r a t e s . Consequently, t h e non- rejection of equal r e l a t i v e a l -

l o c a t i v e e f f i c i e n c y hypothesis i n t h e reg ion appears r a t h e r su rp r i s ing .

I However, givan t h e f a c t t h a t both educat ion and farm technology have been

gradua l ly introduced i n t h e t e r a i over t h e gea r s , i t is p o s s i b l e t h a t

t h e r e has been a s i g n i f i c a n t ' lspil lover ' l e f f e c t of education on the illi-

t e r a t e s enabl ing the l a t t e r t o be a s a l l o c a t i v e e f f i c i e n t a s t h e educated.

The c ross- sec t iona l d a t a employed i n t h i s study may not have been adequate

t o take i n t o account t h e s p i l l o v e r e f f e c t s and t h e non- reject ion of the

hypothesis may not n e c e s s a r i l y imply a l ack of s i g p i f i c a n t a l l o c a t i v e

e f f e c t of educat ion i n t e r a i region. The r e j e c t i o n of t h e equa l r e l a t i v e

a l l o c a t i v e e f f i c i e n c y hypothesis I n t he h i l l , where t h e sp i l l- ove r e f f e c t s

~ f ~ e d u c a t i o n has been i n s i g n i f i c a n t s i nce t he in t ro$uc t ion of new i n p u t s

and spread of education a r e r e l a t i v e l y l im i t ed and new phenomena, re in-

fo rces t h e p l a u s i b i l i t y of t h e s p i l l ~ o v e r e f f e c t explanat ion i n t h e terai. ' +

( i v ) Agr i cu l tu ra l .Product iv i ty i n ~ g d e r n i z i n ~ and T r a d i t i o n a l Environments - *

To test the hypothesis t h a t e d q a t i o n has a higher payoff i n dynamic I

t e r a i than i n a r e l a t i v e l y t r a d i t i o n a l h i 1 1 region and a l s o t o determfne

whether product ion and p r o f i t func t ions g ive s i m i l a r r e s u l t s i n support

of o r aga ins t t h e hypothesis, t h e cont r ibu t ion of education t o agr icu l-

t u r a l p roduc t iv i ty o r ou tput is computed from production and p r o f i t func--

t i o n e s t ima te s f o r both t e r a i and h i l l regions.

The product ion func t ion based es t imates demonstrate t h a t an i n c r e a s e

i n t he average education of a farm ope ra to r by one year expands output

by 5.2 percent (RS1103) i n t h e t e r a i and 5.9 percent (RS583) i n t h e h i l l

region ( T a b l e l P . S imi l a r ly , an add i t i ona l year of d i f f e r e n t l e v e l s

of education inc reases a g r i c u l t u r a l output from 3.7 percent (RS 785) to

10.7 percent (RS 2270) i n t h e t e r a i and 5.8 percent (RS 573) t o 10.5

percent (RS i037) i n t h e h i l l ( t a b l e 1 3 . Even though the percentage

increase i n output f o r t h e average and d i f f e r e n t l eve l s of education is

s i m i l a r i n t h e t e r a i and h i l l , t he t o t a l i nc rease i n output r e s u l t i n g

from an a d d i t i o n a l year of education is much h igher i n technologica l ly

Cynamic t e r a i than t r a d i t i o n a l h i l l region. I n t e r e s t i n g l y , t h e r a t e of

increase i n ouptput gene ra l ly dec l ines with t h e r i s e i n t h e l e v e l of e d e

ca t ion i n both regions i n d i c a t i n g t h a t t h e law of diminishing marginal

p r o d u c t i - ~ i t y app l i e s even i n the use of educat ional inplh(Tab1e 19. The

increase i n t h e con t r ibu t ion t o t h e output s t e a d i l y dec l ines up t o h igh *

school l eve l . The con t r ibu t ion of co l i ege l e v e l education remains almost

constant ( r e l a t i v e t o secondar j and high school level) i n t h e h i l l while

i t s u b s t a n t i a l l y r i s e s i n t he t e r a i . This may be because t h a t higher

education may enable farmers t o introduce nore modern inpu t s an& a l s o ' *

enhance t h e i r a b i l i t y t o ad jus t t o d i s e q u i l i b r i a i n a changing gnviron- - - *

ment ( t e r a i ) r h i l e a higher education may have a l imited va lue a . - r e l a t i v e l y t r a d i t i o n a l a r e a ( h i l l ) .

The p r o f i t funet iun based es t imates d i sp l ay t h a t an a d d i t i o n a l y e a r

Table 13 Contr ibut ion of education t o output based on production and p r o f i t func t ion es t imates , t e r a i and h i l l regions, Sepal.

Tera i H i 1 1 Education Percent Tota l Ootput Pcrccnt To ta l Output Level (as)

Production Funct ion

Primary

Secondary

High School

College 6.5 1,379 6.8 . 671

Average

P r o f i t Funct ion

Average

. .

Note: The con t r ibu t ion of education is compated by u s ing the fol louing

formula ( Lockheed, e t . al. 1980).

E 1 percent = [ (E - 1) x 1001 / N; t o t a l output [ (percent x ?) x -1,

100

where 6 1s educat ion c o e f f i c i e n t i n va lue added funct ion i n tebSes 6 and E

7 { f o r average education i n production funct ion) ; teblcs 8 and 9 ( for

d i f f e r e n t l e v e l s of educat ion i n production funct ion) o r 4n t a b l e 1.4 ( f o r

average educat ion i n p r o f i t funct ion) , N = ycars of farm opera tor ' s

schooling a t mean, = r e s t r i c t e d p r o f i t o r value added. a t mean.

Table 14 Estimates from jo in t estimation of normalized r e s t r i c t ed p r o f i t func t ion and labor, bullock and f e r t i l i z e r demand functions, t e r a i

and h i l l y regions, Nepal

Prof i t function ..

Seemingly unrelated regression estimates with six res t r i c t ions*

' Bara Gorkha

Constant:lnA* -5.232 -2.821 (1.045) (0.592)

land L : 0: 0.572 0.338 (0.070) (0.054)

F Labor (NP) : 4 0.369 0.333 * (0.105) (0.067)

Capital (K): % . 0.127 0.210 * (0.029) (0.042)

Extension (XD): BX -0.043 0.085 (0.103) (0.072)

Age (A): 0; 0.240 0.C67 * (0.160) (0.112)

H Labor (P,) : aN -0.196 -0.067

k (0.042) (0.007)

Bullock (Pb) : aB -0.147 -0.083

* (0.040) (0.004) F e r t i l i z e r (Pf) : a? -0.011 -0 013

(0.010) (0.003) Education (ED) : % . 0.357 0.249

(0.132) (0.084) Demand function

*E Labor: aN -0.196 -0.067

(0.042) (0.007)

* a~

-0.196 -0.067 (0.042) (0.007)

*z Bullock: ag , , -0.147 , -0.083

(0.004) (0.040)

*u a -0.147 -0.083 . - - B (0.040) (0.004)

' J *E f e r t i l i z e r : aF -0.011 -0.013 - (0.010) (0.003) *

- r, *u E - -0.011 -0.013

a~ I

(0.010) (0.. 003)

The numbers i n parentheses a r e asymptotic standard e r r o r s of the es t iuates .

*These a re t h e r e s t r i c t i ons implied by the absolute e f f i c iency of b o ~ h educated and i l l i t e r a t e farmers.

of educat ion r a i s e s a g r i c u l t r i r a l au tpu t by 8.51 p e r c e n t (RS 1715) i n t h e

t e r a i acd by 6.76 p e r c e n t (RS 633) i n t h e h i l l r e g i o n (Table l3) . The re-

s u l t s a l s o i n d i c a t e t h a t t h e c o n t r i b u t i o n of e d u c a t i o n t o o u t p u t is

h iyher i n t e c h n o l o g i c a l l y dynamic t e r a i i n t e r n s of 50 th p e r c e n t a g e and

t o t a l ou tpu t i n c r e a s e . Educat ion 's c o n t r i b u t i o n t o ou tpu t conputed from

p r o f i t f u n c t i c n e s t i m a t e is h i g h e r t h a n t h a t d e r i v e d from produc t ion

f u n c t i o n c q e f f i c i e n t s .

The above r e s u l t s i n d i c a t e t h a t t h e p roduc t ion and p r o f i t f u n c t i o n

based e s t i m a t e s a r e similar bu t n o t i d e n t i c a l . Desp i te minor d i f f e r e n c e s

i n t h e r e s u l t s , t h e evidence from botk models s u p p o r t t h e c o n t e n t i o n t h a t

educa t ion h a s a h i g h e r c o n t r i b u t i o n t o ou tpu t i n t e c h n o l o g i c a l l y dynamic I

t e r a i than i n t r a d i t i o n a l h i l l region. The n o n r e j e c t i o n of t h e c o n t e n t i o n

by e i t h e r model i n d i c a t e s t h a t t h e f i n d i n g of t h i s s t u d y is r o b u s t re-

g a r d l e s s of t h e e s t i m a t i o n tec'nnique employed.

V. CONCLUSIONS:

Education h a s a h i g h e r c o n t r i b u t i o n t o a g r i c u l t u r a l ou tpu t o r pro-

d u c t i v i t y i n t e c h n o l o g i c a l l y dynamic t e r a i than i n r e l a t i v e l y t r a d i t i o n a l

h i l l region. Education c o n t r i b u t e s t o t h e o u t p u t by s i g n i f i c a n t l y im-

proving fanner,. d i t ecL p r o d u c t i v i t y (worker) and a l l o c a t i v e ( a l l o c a t i v e ) 0 . I

a b i l i t y ( e f f e c t s ) i n both reg ions . Only t h e i n p u t- a l l o c a t i o n component

of t h e a l l o c a t i v e e f f e c t of educa t ion is c r u c i a l i n t r a d i t i o n a l h i l l . re- - -. gion whi le both t i . ? i n p u t- a l l o c a t i o n and i n p u t - 3 a l e c t h n e f f e c t s a r e i m-

p

pogtnat i n t h e modernizing t e r a i region. . The educated farmers a r e more economic efficient r e l a t i v e t o t h e

i l l i t e r a t e s i n b c t h t e r a i and h i l l r eg ions . The h i g h e r economic e f f i c i e n c y

of t h e educated i n t h e h i l l r eg ion is a r e s u l t of t h e i r being bo th

s i g n i f i c a n t l y more technica l and a l l o c a t i v e e f f i c i e n t than the i l l i t e r a t e s ,

while t ha t of t h e educated i n t he t e r a i emanates from t h e i r being s i g n i f i c a n t l y

t echn ica l ly more e f f i c i e n t and only weakly a l l o c a t i v e l y e f f i c i e n t than t h e

i l l i t e r a t e s . -4 s i g n i f i c a n t s p i l l o v e r e f f e c t of education seemstohave enabled

i l l i t e r a t e s i n t e r a i region t o c a t c h up wi th the educated i n terms of a l l o -

cat ive ef f i c i e f c y . Extension does not have any s i p n i f i c a n t con t r ibu t ion t o output i n e i t h e r

region. Education and ex tens ion a r e weak s u b s t i t u t e s i n t h e farm dec is ion

making process i n terai while t h e e f f e c t of t k e i r i n t e r a c t i o n is unclear i n

t h e bil-1 region.

Education azd farm earn ings , and education and rrse of modern inpu t s a r e

p o s i t i v e l y c o r r e l a t e d i n both regions. However, che l e v e l of education add

use of modern innovat ions a r e much s t r ang ly co r r e l a t ed i r dynamic t e r a i than

i n h i l l areas . Child mor t a l i t y and l e v e l of educat ion, on the o the r hand,

are negat ively c o r r e l a t e d i n both t e r a i and h i l l regions.

Production and p r o f i t f u n c t i m models g ive s i m i l a r (but no t i d e n t i c a l )

r e s u l t s and e i t h e r can be u t i l i z e d t o analyze t h e impact of education.

Bowever, t h e p r o f i t func t ion model is b e t t e r s u i t e d t o s t a t i s t i c a l l y t e s t

t h e hypothesis concerning the worker ( technica l ) , and a l l o c a t i v e (al loca-

t i v e ) e f f e c t s ( e f f i c i e n c i e s ) , while production func t ion mcdel appears more . L a

s u i t e d t o q u ~ n t i t a t i v e l y measure t h e e f f e c t s of education.

The f ind ing of t h i s s ~ u d y thus suggests t h a t a development s t r a t e g y

combining investment i n a g r i c u l t u r a l technology and human c a p i t a l is l i k e l y '

t o acce l e ra t e t h e a g r i c u l t u r a l development process f a s t e r than- investment

i n e i t h e r eepa ra t e ly . Since the educated f a m s r s a r e more econ~mica l ly

e f f i c i e n t than the i l l i t e r a t e s and the i l l i t e r a t e s are genera l ly small far-

mers i n t h i s s tudy , t h e outcome of t h i s study a l s o has an important iccome

d i s t r i b u t i o n impl'cation.

Appendix I . Primary l e v e l schoo l s , teaching s t a f f and enrollment i n Nepal.

Year Number of Teaching

schoo ls staff P u p i l s

e n r o l l e d

Sources: United Nations, S t a t i s t i c a l Yearbook, c a l Yearbook, 1963, 1967, 1970, 1975, Ministry of Education, Nepal.

NA = not a v a i l a b l e

1954; UNESCO, S t a t i s t i - 1976, 1977; HMG,

* Appendix X I . Secondary l e v e l teaching s t a f f and enrol lment i n Nepal .

Teaching Year s t a f f Enrollment

Sources: Uni ted Nat ions , S t a t i s t i c a l Yearbook, 1954; UNESCO, S t a t i s t i - c a l Yearbook, 1963, 1967, 1970, 1975, 1976, 1977; and HMG, M i n i s t r y of Educat ion, Nepal.

* I n c l u d e s g e n e r a l , v o c a t i o n a l , and t e a c h e r s t r a i n i n g NA = n o t a p p l i c a b l e

Appendix 111. Higher l e v e l t each ing s t a f f and enrol lment i n Nepal.

Year Teaching s t a f f Enrollment

Sources: Uni ted Nat ions , S t a t i s t i c a l Yearbook, 1954; UNESCO, S t a t i s t i c a l Y e a ~ b o o k , 1963, 1967, 1975, 1976.

Appendix I V : The T h e o r e t i c a l Aspect of t h e Product ion Func t ion Model

A c l a r i f i e d and expanded v e r s i o n of t h e product ion f u n c t i o n frame-

work based on Welch's work is presen ted below. The purpose of t h i s ap-

pendix i s t o show hov v a l u e added, g r o s s s a l e s and eng ineer ing ( s i n g l e

ou tpu t ) p roduc t ion f u n c t i o n s r e s p e c t i v e l y measure t h e t o t a l e f f e c t ,

. worker and i n p u t- a l l o c a t i o n e f f e c t and only worker e f f e c t .

Consider a farm in which t h e r e a r e two o u t p u t s , Y1 and Y2 , and each . outpu t is a f u n c t i o n of educa t ion , E , purchased i n p u t s , X , and farm-sup-

p l i e d i n p u t s , Z:

The v a l u e added (Y) by farm supp l ied i n p u t s and educa t fon becomes C)

where P is p r i c e of j t h o u t p u t and Px is p r i c e of i n p u t X [ 1

Assume t h a t a l l f a rmers do no t possess t h e same a b i l i t y of s e l e c t i n g and

o p t i m a l l y a l l o c a t i n g purchased i (var iab1e) i n p u t s among competing : scs . €

and t h a t s e l e c t i o n nnd such an a l l o c a t i o n is a funcefott of educat ion:

(6) X = f (E) - - '9

Also assume t b a t t h e q u a n t i t y of farm s u p p l i e d i n p u t s is f i x e d i?~ t h e - s -

s h o r t run and.that a l l o c a t i o n (bu t n o t s e l e c t i o n ) of such r e s o u d e s - among competing uses depends on educa t ion :

purchased i n ? u t s , inc lud ing t e chn o log i ca l l y b e t t e r new i n p u t s ( input-

s e l e c t i o n e f f e c t ) . The express ion (12) demonstra tes t h a t i f a v a l u e added

product ion func t i on is es t imated by excluding X and inc lud ing E and Z as

an independent v a r i a b l e , che n a r g i n a l va11:e product (MVP) of educa t ion

accounts f o r a l l t h e t h r e e e f f e c t s . I f Y i n (2) i s g r o s s sales and if

a g ros s s a l e s product ion f u n c t i o n is es t imated by inc lud ing X, Z and E

as independent v a r i a b l e s , t h e l a s t term i n (12) is l o s t . The MVP of edu-

c a t i o n from t h e g ross s a l e s f u n c t i o n c o n t a i n s on ly t h e worker and inpu t -

a l l o c a t i o n e f f e c t s . I f Y i n (2) is ou tpu t of a s i n g l e c rop and such a

product ion func t i on of a s i n g l e crop engineer ing product ion func t i on is

es t imated , a l l t h e terms except t h e f i r s t cqe i n (12) d i sappear . The MVP

of educat ion from t h t eng ineer ing func t i on con t a in s only t h e worker

e f f e c t s i n c e t h e ques t ion of a l l o c a t i o n of i n p u t s among competing u s e s

does no t a r i s e when only a s i n g l e crop is considered.

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POPULATION h HUMAN RESOURCES DIVISION

DISCUSSION PAPERS

[A * by t h e number i n d i c a t e s t h e paper is Bank- confidential o r o therwise r e s t r i c t e d . ]

Oey A. Meesook, "Demographic C h a r a c t e r i s t i c s o f I n d i v i d u a l s and t h e Measurement of L i f e t i m e Income". February 1981.

Susan H. Cochrane, "The Economics of F e r t i l i t y wi th Examples from A s i a " . February 1981.

Rashid F a r ~ q e e , " Soc ia l I n f r a s t r u c t u r e and S e r v i c e s i n Zimbabwe". February 1981.

Richard Sabot, A. Berry, A. Hazlewood, J. Knight, J. Armitage and M. B o l s s i e r e , "Cognit ive S k i l l s : T h e i r Determinants and I n f l u e n c e on Earnings i n Two Poor Urban Economies." February 1981.

Dean T. Jamison, Barbara S e a r l e , Stephen Heyneman, and Klaus Galda "Improving Elementary Mathematics Educat ion i n Nicaragua: An Experimental Study o f t h e Impact of Textbooks and Radio on Achievement". March 1981.

Rashid Faruqee, "Analyzing t h e Impact of Hea l th Serv ices : Narangwal and Other Experiences" . March 1981.

J. B. Knight and R. H. Sabot , "Labor Market Disc r imina t ion i n a Poor Urban Economy". March 1981.

Oey A. Meesook, " I n t e r r e l a t i o n s h i p s between Demographic F a c t o r s and Income D i s t r i S u t i o n : Problems of Measurement, D e s c r i p t i o n and I n t e r p r e t a t i o n" . A p r i l 1981.

Susan H. Cochrane, Nirmala J o s h i and Kalpana Nandwani, " F e r t i l i t y Az t i tudes and Behavior i n t h e Nepal Terai" . A p r i l 1981.

J . R . Knight and Richard Sabot, "The Role of t h e Firm i n Wage D e t e m i n a t i o n : An Afr ican Case Study". A p r i l 1981.

J . B . Knight and R i c h a ~ d Sabot, "The Returns t o Education: I n c r e a s i n g wi th Experience o r Decreasing wi th Expansion?". &ch 1981.

J . B . Knight and Richard Sabot, "From Migrants t3 P r o l e t a r i a n s : Emp? 0ymen-t: Experience, K o b i l i t y and Wages i n Tanzania". March 1981.

@ A. Berry and Richard ~abo;, "Unemployment and Economic Development".

A p r i l 1981.

81-14 Rashid Faruqee and Ethna Johnson, "Heal th , N u t r i t i o n and Family Planning: A S U N ~ Y of Experiments and S p e c i a l P r o j e c t s i n Ind ia" . A p r i l 1981.

81-15 Francois O r i v e l and Dean T. Jamison, "The Cost- Effect iveness of Dis tance Teaching P r o j e c t s " . June 1981

81-16 Richard Sabot , "Labor Force Growth, Employment and Earnings i n Egypt: 1966-1968". May 1981.

Q E 81-17 K.C. Zachar iah , "Anomaly of t h e F e r t i l i t y Decl ine i n Kerala : S o c i a l

Development, Agrar ian Reforms, o r t h e Family Planning Program". k May 1981.

t 81-18 Richard Sabo t , A. Berry , A. Hazlewood, J. Knight, P. C o l l i e r ,

J. Armitage, M. B o i s s i s r e , "Education Expansion and Labor Market Adjustment i n Kenya and Tanzania - A Background Paper". May 1981.

* 81-19 Nancy B i r d s a l l and Oey Meesook, "Child Schooling, Number of Ch i ld ren

and I n t e r g e n e r a t i o n a l Transmipsion of I n e q u a l i t y : A Simulat ion" . May 1981.

81-20 Franco i s O r i v e l , "The Impact of A g r i c u l t u r a l Extension Serv ices : A Review o f t h e L i t e r a t u r e " . J u l y 1981. Also a v a i l a b l e i n French a s "L'impact d e s S e r v i c e s d e V u l g a r i s a t i o n Agricole : Revue d e l a L i t t S r a t u r e " .

81-21 Nancy B i r d s a l l and M. Lc.sise Fox, "Why Males Earn More: Locat ion, J o b Pre fe rences and Job Disc r imina t ion Among B r a z i l i a n School teachers" . May 1981.

81-22 Al thea H i l l , "The Demo~raphic S i t u t a t i o n i n Sub-Saharan Af r i ca : A Discuss ion Paper". May 1981.

81-23* R. Sabot , A. Berry, A. Hazlewood, J. Knight , J. Armitage, M . B o i s s i e r e "Does t h e Expansion of Education Compress t h e S t r u c t u r e of Wages and Reduce t h e I n e q u a l i t y of Pay? A Pre l iminary Analys is" . J u l y 1981.

81-24* Nancy B i r d s a l l and Dean T. Jamison. "Income and Other F a c t o r s In f luenc ing F e r t i l i t y and M o r t a l i t y i n China". October 1981.

8172536 Nancy B i r d s a l l , Sulekha ,Pate l and K. C. Zachar iah , " A l t e r n a t i v e * P r o j e c t i o n s of t h e Chinese Population" . June 1981.

81-26* Dean T. Jamison, T.J. Ho, and F.L. Trowbridge. "Food A v a : ~ a b i l i t y and t h e N u t r i t i o n a l S t a t u s of Ch i ld ren i n China". September 1981. -

81-27* Dean T. Jamison. "Child M a l n u t r i t i o n and School R e t a r d a t i o n i n China". September 1981. -

s 81-28 Deborah Lhamon'bcmil lan . "Language P o l i c i e s f o r Af r fcan Primary

Education: Summary of t h e Anglophone Research L i t e r a t u r e . " Ju ly 1981.

81-29 Tania Thevenin. "Les Impl ica t ions Pedagogiques d e s P o l i t i q u e s d e l angues dans l'enseignement en Afr ique: Une r e n e de l a l i t t e r a t u r e Francophone". June 1981. Also a v a i l a b l e i n Eng l i sh as "PedagogicdE I m p l i c a t i o n s of Language Po l i cy i n A f r i c a n Schools: A Review of t h e Francophone L i t e r a t u r e" .

Vicen te Paqueo. "A Household Product ion Hodel of School Enrol.lment: A P r o b i t Analysis of t he 1978 Bico l Multipurpose Survey Data". June 1981

Bryan L. Boul ier and Vicente B. Paqueo. "On t h e Theory and Heasurements of t h e Determinants of Morta l i ty" . June 1981

Reynaldo Mar tore l l . " Nu t r i t i on and Heal th S t a t u s I nd i ca to r s : . Suggestions f o r Surveys o f t h e Standard of Living i n Developing

Countries" . June 1981.

R. Sabot , A. Berry, A. Hazelwood, J. i(sigkt, J. Armitage, and M. Bo iss ie re . "Cor re la tes of Educat ional Attainment i n Tanzania". J u l y 1981.

Susan H. Cochrane. "The Determinants of F e r t i l i t y and Chi ld Surv iva l i n t h e Nepal Terai" . J u l y 1981.

Joanne L e s l i e , B.G. Baidya, and K. Nandwani. "Prevalence and Cor r e l a t e s of Childhood Ma lnu t r i t i on i n t h e Te ra i Region of Nepal". J u l y 1981.

R. Mansell Prothero. "Perspect ives on Populat ion Mobil i ty i n West Afr ica" . August 1981.

Timothy King. "Population Growth, I n t e r n a t i o n a l Resource T rans f e r s , and I n t e r n a t i o n a l Migration". August 1981

Timothy King. "Immigration from Developing Countr ies : Some Phi losophica l I s sues" . August 1981.

R. Sabot and J. Knight, "Why Wages Di f fe r : Earnings Functions i n a Poor Urban Economy". August 1981.

Joao B a t i s t a de Araujo e O l i v e i r a and Franco is q r i v e l . "In-Service Teacher Training System: Logos I1 i n Brazi l" . August 1981.

R. Sabot , A. Herry, A. Hazlewood, J. Knight, J. Armitage and M. go i s s i e r e . "Cor re la tes of Educat ional Attainment i n Kenya". !

Augqst. 1981. 6

P e t e r T a l l o n . Bo tyana : A ~ i s k i b u t i o n

"Incomes, Poverty and Income D i s t r i b u t i o n i n Rural - . Synthes i s of Evidence Based on t h e Rural Income E Survey." September 1981. I

Barbara Watanabe and Eva Mueller. "A Poverty P r o f i l e f o r Rural Botswana." October 1981.

Eva Huel le r . "The Value and Al loca t ion of Tine i n Rural Botswana." November 1981.

81-45 Robert E.B. Lucas. "The D i s t r i b u t i o n and E f f i c i e n c y of Crop Product ion i n T r i b a l Areas o f Botswana." September 1981.

81-46 Robert E.B. Lucas. "The D i s t r i b u t i o n o f Wages and Employment i n Rura l Botswana." September 1981.

81-47 Dov Chernichovsky. "Socioeconomic and Demographic Aspects of School Enrollment and Attendance i n Rural Botswana." October 1981.

. 81-48 Dov Chernichovsky. "Socioeconomic C o r r e l a t e s of F e r t i l i t y Behavior i n Rura l botswana." October 1981.

81-49 S h e r r i Kossoudji and Eva Mueller. "The Economic and Demographic S t a t u s o f Female Headed Households i n Botswana." October 1981.

0 0 0 0

81-50 Franco i s Or ive l . "La T e l e v i s i o n S c o l a i r e du Senegal: Eva lua t ion Economique e t Perspect ives ." Aout 1981. (Summary a v a i l a b l e i n Engl ish . )

81-51 H i l l a r y P e r r a t o n , Dean T. Jamison and F r a n c o i s Or ive l . "Mass Media .: f o r A g r i c u l t u r a l Extension i n Malawi". September 1981 P

81-52 Thomas W. Merrick. "The Impact of Access t o Piped Water on I n f a n t M o r t a l i t y i n Urban B r a z i l , 1970 t o 1976." August 1981.

81-53 N. Krishnan Nambaodiri. "Determinants of F e r t i l i t y i n S r i Lanka." September 1981.

81-54 N. Krishnan Namboodiri. "Age a t Marriage i n S r i Lanka." October 1981.

81-55* R. Sabot , A. Berry , A. Hazlewood, J. Knight, J. Armitage, 13. B o i s s i e r e . "The S t r u c t u r e of Wages i n Kenya and Tanzania: What Role Has Pay Po l i cy Played?" October 1981. . t

81-56* R. Sabot , A. Berry , A. Hazlewood, J. Knight, J. Armitage, M. P o l s s i e r e . "Wage Dynamics i n Tanzania and Kenya: P o l i c y Simulat ions ." October 1981. - -

' I 81-57 Dov Chernichovsky and Oey A. ~ e e s z o k . "Female Labor Force P a r t i c i p a t i o n

i n Indonesia ." October 1981. Z * 81-58 Dov Chernichovsky and Oey A. Xeesbok. "Povei ty i n Indoensia : A

P r o f i l e . " November 1981.

81-59 Susan H. Cochrane and Kalpana Nandwani. "The Determinants of F e r t i l i t y i n 22 V i l l a g e s of Northern Thailand." December 1981

81-60 Forthcoming

81-61 Susan H . Cochrane and Dean T. ,Jamison. "The Determinants and Consequences of Educational Achievement i n the Rural Chiang Hai Valley." Decen'uer 1981.

81-62 Rashid Faruqee, Carl Taylor, R.S.S. Sarma, Robert Parker and William Reinke. "Benefits of Integrating Family Planning with I

Health Services: The Narangwal Eqerimsnt". December 1981.

POPULATION & H L W RESOURCES DIVISION

DISCUSSION PAPERS

[A * by t h e number i n d i c a t e s t h e pap+r i s Bank- confidential o r o t h e r v i s e r e s t r i c t e d . ]

H i l a r y Per ra ton . "Mas3 Media, Basic Education and A g r i c u l t u r a l Extension" . January 1982.

K.C. Zachariah and Sulekha P a t e l . "Trends and Determinants of In2znr and Chi ld M o r t a l i t y i n Kerala" . January L 982.

Som Pudasaini . "Education and A g r i c u l t u r a l Ef f i c i c n c y i n Nepal" . January 1982.