Doc. Educaction Demand Functions For Comments

ECUADOR: DEMAND FUNCTIONS FOR PRIMARY AND
SECONDARY EDUCATION
DRAFT for Comments
Pablo Salazar Canelos

ECUADOR: Primary and Secondary Education
TABLE OF CONTENTS
I. INTRODUCTION........................................................................................................................1
II. THEORETICAL FRAMEWORK ...............................................................................................3
II.1. The nature of education........................................................................................................3
II.2. The Public Provision of Education ......................................................................................5
II.3. Education and Inequality......................................................................................................6
III. SOME EMPIRICAL APPLICATIONS IN DEVELOPING COUNTRIES............................6
IV. THE EDUCATION SECTOR IN ECUADOR........................................................................7
V. ECONOMIC MODEL AND ECONOMETRIC SPECIFICATION .........................................12
V.1. The economic Model..........................................................................................................12
V.2. The Econometric Specification ..........................................................................................14
V.3. Estimating Expected Returns to an Additional Year of Education....................................18
VI. THE DATA ............................................................................................................................19
VI.1. The General Context ......................................................................................................20
VI.2. Enrolment .......................................................................................................................20
VI.3. Socio-economic characteristics......................................................................................20
VI.4. Gender and area..............................................................................................................22
VI.5. Background ....................................................................................................................22
VI.6. The cost and quality of education ..................................................................................23
VII. RESULTS ..............................................................................................................................24
VII.1. Primary Education..........................................................................................................25
VII.1.1. Interpretation of Parameters...............................................................................25
VII.2. Secondary Education......................................................................................................27
VII.2.1. Interpretation of Parameters...............................................................................28
VIII. POLICY IMPLICATIONS ....................................................................................................29
IX. CONCLUSIONS....................................................................................................................31
X. BIBLIOGRAPHY ......................................................................................................................31
XI. VARIABLES FOR THE CALCULATION OF DEMAND FUNCTIONS FOR PRIMARY
AND SECONDARY EDUCATION IN ECUADOR........................................................................33
XII. DESCRIPTIVE STATISTICS: PRIMARY AND SECONDARY EDUCATION ...............34
XIII. PRIMARY DATABASE STATISTICS ................................................................................41
XIV. SECONDARY DATABASE STATISTICS..........................................................................42
XV. EARNINGS FUNCTION ......................................................................................................45
XVI. MULTINOMIAL LOGIT: PRIMARY EDUCATION IN ECUADOR ................................46
XVII. MULTINOMIAL LOGIT: SECONDARY EDUCATION IN ECUADOR..........................48
pablosalazar@porta.net Pablo Salazar Canelos ii

I. INTRODUCTION
Education is recognized as a special good with various important economic implications: i) the
average education level of the population in a country plays a major role in per capita economic
growth (Barro 1997); ii) there exist important positive externalities related with basic skills acquired
at the first stages of the learning process (e.g. reading and writing), and iii) it is a critical mechanism
for the enforcement of social values and social cohesion (Barr 1998).
On the other hand, in terms of consumers’ choice, education must be seen as a complex good due to
its nature: it could be considered as an investment as well as a consumption good. The first
definition is related to the fact that education plays an important role in the definition of future
earnings of the individual either under the human capital theory or the screening hypothesis1 .The
second is related with the fact that there are other non monetary rewards (satisfaction) derived from
the educational process itself.
However, as it will be seen later, one problem faced by the public sector is the fact that information
in the education sector is asymmetric. The beneficiaries of education rarely (at least in the early
stages of their educational life) decide by themselves. The parental decisions are then crucial. But
parents, as well as their children, do not necessarily have information about the implications of their
marginal decisions concerning education (e.g. the purchase of an additional unit of numeracy
lessons), or certainty about the economic returns to education in the future.
Apart from this problems, there might be failures in related markets that are sources of
inefficiencies because of restrictions in access to capital for education financing: i) the absence of
competitive capital markets (one reason is the persistence of informational problems related with
individual ability and effort), and ii) institutional restrictions (e.g. regulation over maximum levels
of interest rates) that might restrict access to loans to certain groups of individuals.
Given these elements, it is possible to justify some form of public intervention in the education
market: i) the establishment of standards and regulations (e.g. national curricula), ii) the establishing
of a minimal compulsory number of years of education, in order to correct for incomplete markets
failure, and iii) eventually the financing of education expenditures, or the provision of collaterals for
private borrowing.
Under these considerations, most of the reform proposals in the education sector are aimed on
improving competition, enforcing consumer sovereignty (Barr 1998 and 1991) and improving
vertical targeting efficiency (Atkinson 1990). One of the mechanisms to achieve these objectives is
to replace education expenditures, which tend to be a non-efficient redistributive tool (Arrow 1971)
with cash transfers, targeted to poor families.
However, given informational problems, it might be the case that most economist and politicians,
except for those with strong libertarian views, would discard such mechanisms and justify a more
paternalistic vehicle to accomplish the redistributive objectives, like in kind transfers. Doing so,
nevertheless, implies establishing means tested mechanisms, which tend to generate poverty traps
and other sorts of inefficiencies. In order to avoid it, it might be the case that universal benefits
could be used, what will face again a problem in terms of vertical targeting efficiency.
1
These concepts are explained and studied extensively in the first section of the document .
pablosalazar@porta.net Pablo Salazar Canelos 1

A relative new stream in Public Economics Literature argues that there are additional redistributive
arguments to consider (Boadway and Marchand 1995, Creamer and Ghavary 1998 and Bloemquist
and Cristiansen 1999). So, even if a redistributive tool as an optimal non-linear income tax is
available, it might be the case that public provision of private goods might be an important
instrument in order to relax self-selection constraints and improve welfare in the case that
asymmetric information about innate ability exists, and certain conditions hold.
So, under these considerations, a stronger case in favour of public provision of goods exists if the
publicly provided public good is less complementary with leisure than consumption (Blomquist and
Christiansen 1999) and in the case that a close privately provided close substitute exists; education
is likely to have these properties.
However, the general experience in developing countries, and most particular of Ecuador, is that the
public sector education system tends to provide a lower quality service than that of the private one 2,
due to under-investment in the public education system. It is important to notice, however, that this
result has been proofed in the literature (Epple and Romano 1998) to be a feasible result in the case
of mixed provision of education, given an unequal distribution in income, and those conditions of
the median voter theorem hold.
An associated problem is that on average the poor results for public education as well as the under
investment of public resources (e.g. poor infrastructure as well as low teacher wages) have a
negative influence over the performance of the private sector, which could maintain its market
offering a slightly better quality service, but poor in terms of international standards.
In this context, one of the mechanisms to improve quality in the public sector, and therefore give
incentives for further improvements in the private sector quality, without increasing the tax burden,
is to reallocate resources within the public education system from higher education towards lower
levels (primary and secondary). An additional proposed reform might be to increase parental
involvement in monitoring, evaluation and social control of teachers and school authorities in the
context of a more serious attempt of decentralisation of education system.
This might allow parents to top up public education according to their specific preferences and to
negotiate more internal changes that might be important to make education more responsive to local
needs and demands, increasing parental choice.
This argument is one of major concern in developing countries, where the reform of the education
sector is seen as a strategic one, in order to improve the country capabilities to compete in a
globalised economy. In the case of Latin America, which has done poorly in the last two decades
due to macroeconomic problems, education is also seen as an instrument in the fight of alleviating
poverty and inequality3.
Many proposals, most of them not yet implemented, have been risen. In this study my purpose is to
explore the economic viability of two proposals and its implication in Ecuador, a country that faced
severe fiscal restrictions and for which qualitative as well as quantitative data about the education
2
The results in similar tests between children in public and private schools seem to indicate this trend. However, the
available data doesn’t allow testing statistically these hypotheses.
3
Latin America, according to the 1999 Inter American Developme nt Bank Report is most unequal region in the world.

sector, individual preferences, education choices and associated costs are available: i) partial
funding by fee charges and ii) a system of cash incentives that stimulate children’s families to keep
children enrolled.
To do so, an economic model is defined, and econometric techniques and data of the 1999
Ecuadorian Living Standards Survey (ECV) are used to estimate the demand functions for primary
and secondary education in Ecuador, characterising the decision of the household and deriving
marginal effects of the dependent variables that allowed simulating the effect of different policy
alternatives.
The sequence of the document is as follows. The first part of this document presents a theoretical
framework based on a relevant literature review. In the second the key issues of applied work in the
field are summarized. The third part describes the education sector and the global context of the
reform in Ecuador. The fourth section is concerned with the establishment of the economic model
and its stochastic specification. In section five, the model results and its interpretation are presented.
In section 6 the results are used to assess different proposals. In the last section the main findings
and conclusions are presented.
II. THEORETICAL FRAMEWORK
Education, despite the common notion, is a private and not a public good. It exhibits three
characteristics: i) rivalry in consumption, ii) excludability and iii) rejectability (Barr 1998). So, far
from being a public good, education, especially if defined as attendance to educational institutions 4,
seems to be a pure private good5. However, it is the case that in the case of education the exclusion
of individuals might be possible, but not desirable, converting education in a special case.
As a private good, education is provided privately but also by the public sector. This fact denotes
that at a certain point in history (the latest 1890 in the case of Ecuador), it was recognized that
public intervention in the education market was necessary or at least desirable based on efficiency
or redistribution grounds. The first one could justify intervention such as regulation and financing,
but not necessarily provision, as argued in the introduction of this document. The second one
justifies it in certain cases that are subject to analysis in the public sector economics literature.
II.1. The nature of education
Education is a special good, because it could be considered as a consumption but also as an

investment one. The economic view of education as investment is a proposition built under the
scope of the human capital theory (Becker 1964), and it states, basically, that the demand of
education is a function of its production. However, more recent streams stress the importance of the
utility that is directly derived from it.
Following Barr (1998) setup:
E i = E ( Pi , U i ) (1) , where: E i = Education of the i th individual, Pi = Production of the i th

individual and U i = Utility of the i th individual, i=1,2,.....,n.
4
In some developing countries like in Ecuador, despite education is compulsory on the paper, it is not in reality.
Thousands of children in Ecuador, for example, do not attend to school.
5
However it must be stated that there are positive external effects derived from education that must be considered.
The production term could be understood as the benefits derived from the application of the learned
skills and the productivity achieved by the individual. This term is observable in the differential
wage rate among individuals with different levels of education.
On the other hand, there are several aspects of education that are important for individuals and
society, despite they have no direct relationship with the production term of the previous definition.
These elements, more related with the consumption of education, enjoying learning, participating in
the process of education and developing abilities to enjoy leisure are incorporated in the second
term of Equation 1.
Under this scope, a rational decision is supposed to maximize the net present value of an extra unit
of education; in this case an extra year, for example, given the costs and the benefits derived from
it. The benefits could be measured in terms of future earnings, meanwhile the costs include the
opportunity costs of lost income, the direct costs of education; among others, transportation,
materials, books, transaction costs, tuition and fees, if applicable (Selden and Wasylenko 1996).
Without uncertainty about the life expectancy, the wage rates in the labour market, the opportunity
costs, the number of years of work, a constant discount rate and perfect forward-looking
information, the individual problem would be to calculate the net present value of an extra year of
education.
However, it could also be argued that the earning ability of individuals does not depend on their
education level, but more on their innate ability (Stiglitz 1974 and 1975). In other words, the
productivity level is related with education but not determined by it. But, the ability is not directly
observable by the employers in the labour market. Thus, individuals are supposed to find a way for
signalling their hidden ability level. The obvious way is the formal education system. Higher
education levels as well as attendance to “high ability education institutions” (Stiglitz 1974) tend,
under this hypothesis, to signal a higher level of ability, given the informational problem. This
approach is recognized in the literature as the screening hypothesis.
As expected, there are serious limitations in the real world in terms of applying these frameworks.
The human capital theory approach is based under the assumption of complete and perfect
information (Barr 1998). So, the individual is supposed to make his/her own decisions, have
certainty about her life-expectancy, know the marginal6 wage rates at every point related with the
different levels of education, his/her opportunity costs and also having a discount rate. In addition
this assumes that individuals know about the impact on the future of the decisions made by other
“players”.
Many of these considerations are too restrictive, beginning by the fact that the amount of
information available is limited (for instance to know about the marginal utility of choosing an
additional hour of class in numeracy instead of one of playing time demands an amount of
information that is not necessary available). In addition, the decisions, at least at the first stages of
the education process, are being made by parents or guardians, and not by the individuals
themselves.
On the other hand, the screening hypothesis requires that high ability individuals were able to
finance their education, whatever their initial wealth endowments and income, even if they came
6
In the sense of an additional year of education.
from extremely poor families. This assumption in countries in which the schooling costs are
relatively high for extremely poor people and where there are not incentive mechanisms in place to
assure that children stay enrolled, is restrictive too.
Apart from the fact that education is important in terms of its private returns, it must be considered
that there are positive social effects:
q Barro (1997) estimates, using a panel of 114 countries from 1960 to 1990, that an additional
year of schooling at the secondary or higher level for males aged 25 years and over tends to
raise the per capita GDP growth rate in 1.2%.
q Educated people are more likely to be healthier according to the Grossman model and
empirical confirmation (Zweifel and Breyer 1997).
q Education plays a mayor role in the demographic transition processes, reducing the fertility
rate and, therefore, contributing to economic growth in less developed countries. This is
explained by the fact that if the population is growing, then a proportion of the economy’s
investment is used to provide capital for new workers instead of increasing capital per
worker, lowering the per capita GDP growth rate.
In addition education produces positive externalities in different areas: I) there are technical positive
spillovers, ii) it reduces crime rates and iii) enforces social values and freedom (Sen 1999).
II.2. The Public Provision of Education
As explained before, many of the presented arguments provide a strong case in favour of public
intervention in education, but not necessarily for its public provision or production. So, apart from
the efficiency considerations, it is necessary to explore its redistributive implications.
The public economic literature has treated this problem extensively. As studied by Boadway and
Marchand (1995), the public provision (not only its finance) is justified on redistributional grounds,
even in the case that an optimal tax mechanism is available, if informational problems prevent the
government to distinguish to distinguish high ability individuals mi micking low ability individuals,
there exist mixed provision of the good, the publicly provided good is not resalable in the market,
the good is less complementary with leisure than after tax income and the government objective is
to redistribute income from high ability to low ability individuals.
Under this framework, the public provision will imply a Pareto improvement in comparison with
the case in which only the tax system is being used for redistributive purposes. However, the
problem is that usually the publicly provided good, namely public education is not a perfect
substitute of private education. In Ecuador, for instance, this could be exemplified by the fact that
quality, measured indirectly by the outcome of tests, is higher in private institutions than in public
ones, at every level7. In addition, it has become usual in the last 20 years that students in public
education attain few days to schools than their private colleagues, giving the problem of public
teacher strikes 8.
However, there might exit other factors affecting the education outcomes of students between
public and private schools: i) it might be the case that children enrolled in private schools have
7
The tests of the “Aprendo Project” were applied to students of private and public institutions for grades 3,6 and 10.
8
The last one in 1999 went on for almost two months.
higher ability, ii) that their parents value education more and therefore participate more in
supervising work at home, which results in a bigger effort.
These elements are crucial, because of its implication in terms of the results of introduction of
education vouchers or the implementations of proposals of creation of quasi-markets in education.
Epple and Romano (1998) have studied the impacts of the introduction of a suplementable voucher
system9 considering a mixed system for provision of education and the existence of peer-group
effects 10. The most important finding is that the result of such policy is the decline in the quality of
public education as a result of the drain of high ability students leaving to mean higher ability
private schools.
Despite it could be argued that the evidence of peer-grouping effects is dubious, another way of
looking at the problem is the fact that attending to private schools might be a signal for higher
ability or other characteristics appreciate by employers (Stiglitz 1974).
Given this facts, it might be the case that the introduction of market-based reforms in the education
sector, particularly in terms of enforcing competence and parental choice in the education market,
might have undesired effects in terms of exacerbating inequality.
II.3. Education and Inequality
As pointed out before, one of the reasons why education is considered as a major priority in
developing countries is the fact that education plays a major role in maintaining and reproducing
inequality. So, the specialized literature stresses that the unequal distribution of education plays a
role in explaining the inequality in the distribution of earnings, as well as the inequality in the
distribution of ability and opportunities (Atkinson 1983, pp. 130). The relative importance of these
elements depends, however from many circumstances.
However, given that the distribution of innate ability is random and that it follows a specific type of
distribution, say normal 11, the effects of the other two explaining elements must be very important
in order to explain the much squeezed distribution of income.
In the case of Latin America it was expected, given the experience of countries in the Southeast of
Asia, an important reduction in the inequality of earnings associated with schooling inequality after
the macroeconomic reforms of the 1980’s, which major impact was the openness of the national
economies (Wood 1997). However, the fact is that the earning differentials explained by schooling
inequalities increased during the 1980’s and 1990’s.
III. SOME EMPIRICAL APPLICATIONS IN DEVELOPING COUNTRIES

Many studies and the new literature studying the impact of public schooling systems concentrate the
analysis on the decision of the household (e.g. Gertler and Glewwe (1990), Selden and Wasylenko
(1996), Younger, Villafuerte and Jara (1997) and Levinson, Moe and Knael (2001)).
9
There are many variants in the type of vouchers. A useful discussion could be seen in Blaug 1984.
10
It is recognized by the authors that there is no strict scientific evidence of this type of effects.
11
There is no reason to believe that innate ability must follow a different type of distribution.
The objective in these revised studies is to explain the rational decision of the household in terms of
maximizing the utility derived from different choices. Three of the four studies use multinomial
logit techniques to derive the demand functions for the different choices, calculate the marginal
effects of changes in the price and its impact on the household decision, and the willingness to pay
for education deriving the compensating variation from the demand function.
Gertler and Glewwe’s work (1990), concentrates in the analysis of secondary schooling in rural
areas for Peru using data from the Peru Living Standard Survey from 1985-86 in order to analyse
the impact of charging school fees to raise additional revenues to improve quality and built new
schools in rural areas. The argument behind was that if the willingness to pay for better and closer
schools exceed its costs the introduction of fees might be welfare improving.. Its findings are that
the demand price elasticities are higher for lower income groups although less than 1. With respect
to the willingness to pay, it was found that households were “willing to pay more than the costs of
operating a new school to reduce travel time from 2 hours to zero.
Selden and Wasylenko, on the other hand, present an alternative nonestimation-based approach and
compare it with the results of Gertler and Glewwe. Their conclusion is that the estimation based
approach, despite more costly, has the advantage of being based more rigorously to a specific model
of consumer behaviour. However the nonestimation-based approach has the advantage of not
requiring the definition of a functional form of the utility of the household and of the distribution of
the error term.
Younger, Villafuerte and Jara (1997), use data of the 1994 Ecuador Living Standard Survey to
assess the expenditure incidence in education and health, as well as testing the willingness to pay
for the introduction of fees. The interesting fact is that they introduce the analysis in the case of
consumption of three alternative goods (in the case of health and education): consumption of the
publicly provided good, that provided privately and no consumption of the good in question) and
analyse the redistributive impact of the introduction of fees (cost recover) in the case of the public
provision.
Levinson, Moe and Knael (2001) studied the determinants for working and studying for 12- to 17
year-olds in urban Mexico, using data from the “Encuesta Nacional de Empleo Urbano” (ENEU),
using the multinomial logit technique. They consider the implications of defining work to include
both labour force employment and household domestic work, in contrast to the traditional definition
of market-based employment.
IV. THE EDUCATION SECTOR IN ECUADOR
Public expenditure on education represents 3.3% of the GDP and 15% of the Expenditure of the
Public Sector 12. Most of the production of education services is made in public schools (primary
level) and high-schools (secondary level13) that depend from the Ministry of Education.
12
The definition used is that form the Non-financial Public Sector. Sources: Central Bank (BCE) and Ministry of
Finance of Ecuador.
13
High schools are “decentralized” units of the Ministry of education in budget terms. This implies that the transfers to
the school are made directly from the National Treasury Direction, but they are still dependent from the Ministry in
order to hire personnel, for example. Schools, on the other hand depend completely from the Provincial Education
Direction of the Ministry of Education (DPE). In some Provinces salaries are still paid in the DPE, denoting managerial
concentration and centralization.

Participation of local Governments in education is rare, however, there are some private schools,
most of them managed by the Catholic Church, which receive support from the government.
In comparison with other Latin American Countries (LAC) Ecuador’s public spending is low. As
seen in Figure 1, public expenditure on education as a percentage of GDP is at the level of the
average expenditure in this sample of LAC. However, the figures fall far below average if the
comparison is made using per capita or per student figures (Figures 2 and 3).
Public Expenditure on Education of a Sample of Latin American Countries 1994-1996
Average
Peru
Guatemala
El Salvador
Countries
Ecuador
Costa Rica
Colombia
Chile
Brasil
Bolivia
0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0%

Percentage of GDP
Figure 1
Per Capita Public Expenditure in Education in a Sample of Latin American Countries. 1994-1996
Average
Peru
Guatemala
El Salvador
Countries
Ecuador
Costa Rica
Colombia
Chile
Brasil
Bolivia
- 10.0 20.0 30.0 40.0 50.0 60.0 70.0 80.0 90.0
US$ / per capita
Figure 2
As seen in Figure 3, however, the differences between expenditure at different levels of education
in Ecuador are less important than in other countries of the region. The ratio between the costs per
student at the university level compared with that at the primary level is of 4.3. This figure is of
24.3 in Brazil and 7.7% in Mexico, for example. It is expected, from this fact that public
investments in education tend to be less regressive in Ecuador than in other LAC.

Expenditure / Student in a Sample of Latin American Countries by Education Level
3,000
5,911
2,500
US$ 2,000
1,500
1,276
1,000
470
500
274 278
110 141
-
Argentina Bolivia Brasil Chile Colombia Costa Ecuador El Mexico Paraguay Uruguay Venezuela Average
Rica Salvador
Countries
Source: Young et. al 1997
Cost / student Primary Cost / student Secondary Cost / student Higher
Figure 3
The reason why the analysis based on GDP, per capita and per student figures differ is because of
the composition of the population in Ecuador. Its composition in 1990 (the next Census will take in
2002) is shown in Figure 4.
Ecuador: Structure of the Population
95 and more
90 to 94
85 to 89
80 to 84
75 to 79
70 to 74
65 to 69
60 to 64
Age Groups
55 to 59
50 to 54
45 to 49
40 to 44
35 to 39
30 to 34
25 to 29
20 to 24
15 to 19
10 to 14
5 to 9
0 to 4
0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0%

% of population (1990 Census)
Figure 4
However, Ecuador is a country with relative high level of schooling in Latin America. The average
in the selected sample presented in Figure 5 is 5.7 years, meanwhile in 1999 the average Ecuadorian
has one additional year of schooling than the average person in the sample and almost 3 years in
comparison with the average Latin American over 25 years (IADB 1998).
The expected years of schooling for a child in Ecuador are 11.7 years, a figure higher than the
regional average. The enrolment ratio in primary school is also above the average. However, only
51% of the children enrol in secondary education (6 points below the average regional figure) and
only 11% (the half of the regional average) enrol in tertiary education.
The efficiency of the primary education is consistent with the regional performance. However, it is
not surprising, giving the relatively low figures of per capita and per student public spending, that

the private sector provision of education is much more important in Ecuador than in other analysed
countries (Table 1).
Average Years of Schooling in a Sample of Latin American Countries
10.0
9.0
8.0
6.7
7.0
5.7
6.0
Years 5.0
4.0
3.0
2.0
1.0
0.0
Chile Panama Uruguay Ecuador Venezuela Peru Costa Mexico Colombia Brazil El ParaguayHonduras Average
Rica Salvador
Countries
Source: IADB 1998
Figure 5
Table 1
Education indicators for a Sample of Latin American Countries
Country Expected Net Enrolment Net Enrolment Gross Enrolment % of cohort Private/total Private/total
years of Ratio: Primary Ratio: Secondary Ratio: Tertiary reaching year Enrolment: Enrolment:
schooling Education Education Education 5 Primary Secondary
Argentina 100.0 77.0 36.2 21% 30%
Bolivia* 10.0 97.0 40.0 22.5 8%
Brazil 11.1 90.0 66.0 11.3 12%
Chile 11.8 86.0 55.0 28.2 100% 40% 44%
Colombia 10.5 85.0 50.0 17.2 73% 18% 39%
Ecuador 11.4 92.0 51.0 10.9 85% 27% 34%
Peru 12.4 91.0 84.0 31.1 12% 16%
Uruguay 11.8 95.0 84.0 27.3 98% 16% 16%
Paraguay 9.1 89.0 61.0 10.3 79% 13% 24%
Venezuela 10.5 84.0 49.0 25.3 89% 15% 35%
Costa Rica 10.3 92.0 40.0 31.9 88% 5% 10%
El Salvador 11.2 79.0 36.0 18.0 77% 15% 64%
Mexico* 10.9 100.0 66.0 14.3 86% 6% 12%
Average 10.9 90.8 58.4 21.9 86% 16% 29%
Sources: SIISE: 2000
World Development Indicators 2000
UNESCO: World Education Report 1998
* The expected years of schooling corresponds to the level reported in 1987
With respect to quality, a study of UNESCO (UNESCO 1990) tests a sample of students in some
LAC to analyse education outcomes 14. As seen in Table 2, the results of Ecuadorian and Bolivian
students were the worst. In Ecuador additional periodical tests have been taken in a sample of
private and public schools. On average the results were 10% higher in private urban schools than in
public urban ones. However the average results in the 1996 and 1997 tests were consistent with
those of 1990 15. It is important to note that the tests were design to check skills in numeracy and
language that the kids were suppose to have at the time there were tested.
14
The subjects tested were language and mathematics.
15
The 1996 Results were as follows: Year 2: 49/100; Year 6: 46/100; year 9: 50/100. The 1997 results: Year 3: 38/100,
Year 7: 35/100 and Year 10: 41/100.
Table 2
Results in International Tests
RESULTS
Country 0 - 25 26 - 50 51 - 75 76 - 100 Average result /
100
Argentina 2.7% 38.5% 54.1% 4.8% 52.8
Bolivia 4.2% 67.4% 25.8% 2.6% 44.2
Costa Rica 0.7% 33.9% 49.6% 15.7% 57.5
Chile 2.7% 39.8% 47.5% 9.9% 53.6
Ecuador 13.6% 59.7% 25.2% 1.5% 41.2
Venezuela 0.8% 30.7% 49.8% 18.7% 59.1
Average 4.1% 45.0% 42.0% 8.9% 51.4
Source: SIISE 2000
Despite the international comparisons are interesting in terms of establishing a reference

framework, a more detailed analysis of education in Ecuador is required.
There are major differences within the Country with respect to the grade of development of the
education sector. Not only there are important differences between rural and urban areas, as
expected, but also with respect to the level of development observed in the areas near Quito and
Guayaquil, the capital and the most important city in terms of economic activity in the country
(areas in white in the map), where approximately 30% of the population of the country is
concentrated.
Given these differences, as well as the relative poor performance of the education sector, it might
be interesting to explore the voting preferences of the Ecuadorians respect to the subject. In order to
do so data of a 1998 survey contracted by the National Planning Council16 are used. The sample
selection was made in order to assure regional and socio-economic representativity. The total
amount of cases in the sample is of 4,475.
The key results of the analysed survey are the following:
q 59.1% of the individuals prefer the public sector to concentrate exclusively in the universal
provision of security education and health instead of providing a wide range of public
services. It is very interesting that the higher and lower income are more willing to see this
specialization, meanwhile median income individuals are less interested in it.
q On average 69% of the individuals consider that public education must be provided by the
central government, without intervention of local governments, which is consistent with the
perception that the Ministry of Education and Culture is a very important and useful
institution (59%). This perception is similar in the case of public universities, meanwhile
private universities are considered, on average, less useful for the individuals.
q Despite the fact that public education is supposed 17 to be free, 49% of the people in the
sample consider that public education is expensive.
q Asked for solutions in order to improve quality, 64% of the individuals consider that there is
no room for private sector intervention. This position is particularly strong for the low and
median income individuals in the sample.
q Asked about the perception about the quality of the educational system, 68% of the
individuals consider that the Ecuadorian educative system is good and an additional 4% that
16
Study made by DYA Proyectos for CONADE: Ecuador 2025, a Long Term Strategic Development Plan.
17
Parents are asked in fact for “contributions” in cash or in kind.
18
is excellent . However it is seen that there is place for improvement: 22% consider that the
quality could be improved with better teachers and 29% by improving the curriculum.
q 79% of the individuals agree with the current system in which the Provincial Direction of
Education is in charge of the activities of control, monitoring and evaluation of teachers.
Only 17.7% consider that there is room for local control (parents or local authorities).
q Asked about the possibility of financing the secondary education if the primary education
were totally free, 37.3% consider that they will fully finance secondary education and 41%
that they will do it partially.
V. ECONOMIC MODEL AND ECONOMETRIC SPECIFICATION

V.1. The economic Model
None of the listed studies covering the general topic of this document has an economic model that
deals with the most relevant aspects of the problem faced by the family. Because of that, the actual
model was built by the author (Salazar 2001), taking elements found in Young et. al. (1997) and
Selden et. al. (1996).
Lets consider i households. Every household faces a two stage decision problem: i) sending or not
the child to school, and ii) choosing the type of school in which they are enrolling each child (i.e.
public or private). One important consideration: the household problem is to maximize its utility
under the restriction that there is no discretion in the quantity to be consumed from each educational
choice. The household could consume private, public or no education, without having the
possibility of enrolling the child “part time” in any of the given options 19. As seen later this will
affect the disposable income stream of the family between choices.
The only observable decision is the one made by the household, given the constraints they faced
and its unobservable utility function. This decision, given the maximization behaviour of the
household, must be based on the maximum level of utility derived from every option, as presented
in equation (3).
U i = max( U 0i ,U ki )
*
(3), where U 0i is the utility derived when the child is not enrolled,
and U k the one derived from enrolling the child in the kth alternative; i.e. public or private; k = 1, 2 .
i
The utility of not enrolling the child is defined in (4).
(
U 0i = U C 0i , E 0i ) (4), where C 0i = Consumption without education and E 0i = Consumption of
the non enrolment education option.
It is important to indicate that this formulation assumes that the utility derived from the non
enrolment option for this household is increasing in X 0i and decreasing in E 0i . The implication is
that the household derives utility from all its consumption but also disutility from not sending the
child to school.
18
Clearly there is information asymmetry about quality.
19
This situation is very realistic in the case of Ecuador in which attendance to school is compulsory. The usual case is
that a child who loose more than 4 weeks of classes will not be promoted to the next level.
s.t.: C 0i = Y0i = (∑ n−1

j =1
)
w j * L j + w n * Lnp + wn * Lun (5), where Y0i = Income in the case
of not enrolment, w j = Wage rate of every working member of the household different from the
child, Lij = Amount of labour of every working member of the household different from the child,
w n = Wage rate of the child, Lnp = Amount of paid labour of the child and Lun = Amount of unpaid
labour of the child.
The budget constraint presented in equation (5) basically denotes that the household income is
greater in the case of not enrolment due to the availability of an additional worker doing paid or
unpaid work.
For simplicity, let us denote as Tn the total amount of time of the child dedicated to work.
Tn = Lpn + Lun (6)
So, the budget constraint could be rewritten as equation 7.
 n−1 
C 0i = Y0i =  ∑ w j * L j  + w n * Tn (7)
 j =1 
On the other hand, the disutility of non-enrolment is assumed to be a function of a group of socio-
economic and demographic characteristics of household i and the quality of the available
educational services.
E 0i = E ( z i , Qk , Ω 0 ) (8), where z i = Socio-economic and demographic characteristics of

household i, Qk are quality indicators of the public and private education and Ω 0 = Expected
return for the child’s achieved level of education
So, the utility function of non-enrolment could be rewritten as follows:
  n −1  
U 0i = U   ∑ w j * L j  + wn * T n , E ( z i , Qk , Ω 0 )  (9)
  j =1  
Let us consider the case of enrolment. The utility of the kth alternative is presented in 10.
(
U ki = U C ki , E ki ) (10), where: C X ki = Consumption after education and E ki = Consumption
of kth option of education.
The budget constraint:
s.t.: C ki = Yki − pek * E k ≡ Y0i − pek * E k − wn * (t nk ) (11), where: Yi k = Income if the

child is enrolled, pek = Direct cost of the kth enrolment option and t nk = Time consumed by the
child in education activities.
The utility derived from the enrolment in the kth alternative is the function presented in (12):

E ki = E ( z i , Qk , Ω 0+1 ) (12), where: Ω 0+1 = Expected return for the additional year of education.
So, the utility function (10) could be rewritten as follows:
(
U ki = U Y0i − ( pe k * E k ) − (w n * t nk ), E ( z i , Q1, 2 , Ω 0+1 ) ) (13)
Equations 9 and 13 are analogous, then for the non enrolment option the amount of education
acquired will be zero, as well as the amount of time consumed in education activities; meanwhile
for each one of the k alternatives the former will be 1 and the latter the travel time plus the
standardized 6 hours of classes a day. However, the way in which Ω is calculated differs for every
case: if the child is enrolled the impact of an additional year of education would be taken into
account.
Once the deterministic form of the utility functions is specified, a second step is needed to set up the
model. So, following Domencich and McFadden (1975), equations 4 and 10 could be written as
( )
follows: U mi = U C mi , E mi , ε [m = 0,1,2], where the subscript m denotes all the available options. A
third element in the utility specification (the random variable ε ) is included. This is capturing the
elements that are not observable in our utility specification model.
Recall equation 3. Each alternative will be chosen if the utility derived from it by household i is
bigger than the utility of the remaining alternatives. As an example, alternative 0 (non enrolment)
will be chosen if:
U 0i > U 1i and U 0i > U 2i (15)
This implies that the demand for alternative 0 will be one unit20, meanwhile the demand of
alternatives 1 and 2 will be zero units. Since the utilities are stochastic21, the event that the condition
in equation 15 holds will occur with some probability, which can be denoted by Pm . This
probability is equivalent to the compensated demand function22.
Pm = hm (B , E mi , ε )
(16), where B is the set of affordable bundles. 23
= Prob [U 0i > U 1i and U 0i > U 2i ]
V.2. The Econometric Specification
Following Hausman and Wise (1978), the utility function of the representative individual24 could be
written as follows:
( )
U m = U C mi , E mi = ßx im
i
(17), where ß is a vector of unknown parameters that is common for
i i i
all the households, and x ma vector of arithmetic combinations of the elements of C m and E m .
20
The amount of the acquired good is either 0 or 1 given the discrete nature of the goods.
21
The utility function depends on the random variable ε among others.
22
Domencich T. and McFadden D. (1975) and McFadden (1981). A formal proof of this statement could be found in
the last reference, sections 5.4 – 5.8.
23
Note however that in the specific model the following assumption is made: the price level is fixed.
24
McFadden (1981).
As explained before, this formulation establishes the deterministic model, which is assumed to
represent the “average” behaviour. But the unobserved components differentiating every particular
household from the average, are explained by the non-deterministic part that represents random
deviations from this average. The new form of the model will be the one presented in equation 18.
( )
U m = U C mi , E mi + ε (C mi , E mi ) = ßx im + ε mi
i
(18),where ε is a random variable.
Given the specification of the utility function in equation 3, the household is assumed to choose the
alternative that maximizes its utility. So using the definition of the probability in equation for three
alternatives, the probability that household i chooses an alternative, say 0, is:
π 0i = pr (ε 1i < U 0 − U 1 + ε 0i and ε 2i < U 0 − U 2 + ε 0i ) (19)

i i i i
Analogous expressions could be written for every alternative. As explain in Hausman (1978), once
a joint density function is selected for ε mi , the π mi probabilities are well defined. Let
f (ε 0i , ε 1i , ε 2i ) = f i (ε ) be the density function and F (k 0i , k1i , k 2i ) be the corresponding distribution
function. Then the probability that household i chooses alternative 0 is:
∞ U 10⊕1 + ε 10 U 10⊕ 2 + ε 10
π 0i = ∫ ∫ ∫ f (ε 0i , ε 1i , ε 2i )dε 0i dε1i dε 2i
−∞ −∞ −∞ i
∞
(20), where U m⊕ m´ is the difference in utility
= ∫ F0 (ε 0i ,U 0 ⊕1 + ε 0i ,U 0 ⊕ 2 + ε 0i )dε 0i
i i
−∞
of alternatives m and m´ for the representative (average) household and F0 = ∂F ∂k mi .
17 could also be written in terms of the differences, not only of the utility associated with every
alternative but also of the random variable ε mi . So, using equation 19:
π 0i = pr (ε1i − ε 0i < U 0 − U 1 and ε 2i − ε 0i < U 0 − U 2 ) = pr (η1i ⊕0 < U 0 ⊕1 and η2i ⊕0 < U 0 ⊕ 2 )

i i i i i i
1 1 (21)
=∫ ∫
U 0 ⊕1 U 0⊕ 2
g 0 (η i
1⊕ 0 ,ηi
2⊕0 ) dη i
2 ⊕0 dη i
2⊕0
−∞ −∞
where η m⊕m´ = ε m − ε m´
i i i
Hausman (1978) notes the following: “this transformation reduces the order of integration by one,
and because only subtraction is involved in going from f (⋅) to g (⋅) , distributions which are closed
under subtraction or are transformed into mathematically convenient distributions by subtraction
may be desirable candidates for f (⋅) .”
In order to complete the formulation of the model it is necessary to make some additional
assumptions about the random variable ε mi :
i. E (ε mi ) = 0 ,
ii. ε mi is independently and identically distributed with Weibull distribution25 function.
25
Domencich T. and McFadden D. (1975)
Under these conditions, given that the difference between two random variables (η mi ⊕m´ ) has a
logistic distribution function, the probability that the non-enrolment alternative will be chosen could
be written as:
i
e U0
π =i
0 i (22)
e U 0 + e U 1 + eU 2
i i
Each probability π mi explains the solution to the problem faced by the household maximization
rational decision of the household. Similar expressions could be derived for the other alternatives.
So, the problem of calculating the demand functions for education in Ecuador could be solved using
the multinomial logit technique and the model could be written as follows:
e∑
β x im + ε
π = Prob( y i = m) =
i
m m=0,1,2 (23), where: β = a vector of unknown
e∑ m
2
∑
β x i +ε
m=0
parameters, xi = the dependent variables, y i = the independent variable and ε = the error term.
This problem could be estimated by maximum likelihood using a simple transformation as the one
presented in equation 24.
n m −1
ln( L) = ∑ ∑ d ik × ln Prob(y i = m) (24), where dik are m-1 dummy variables (two in this
i =1 k = 0
case). The first one takes the value 1 if choice is public education and 0 otherwise. The second takes the
value 1 if the choice is private education, 0 otherwise. Only k-1 dummy variables are included to avoid
perfect multicollinearity.
Given the variables listed in Table 326 the extended form of the models for primary and secondary
education are presented in equations 25 and 26.
TABLE 3: VARIABLES FOR THE CALCULATION OF DEMAND FUNCTIONS FOR

PRIMARY AND SECONDARY EDUCATION IN ECUADOR
VARIABLE NAME NAME IN TYPE NOTES
MODEL
Type of enrolment enrol* Discrete 0 = not enrolled
1 = enrolled in public education
2 = enrolled in private education
Direct cost of education (monthly) dir_cst Continuous Values per child in US$
Indirect(opportunity cost) opp_cst Continuous Values per child in US$
Total Income of the household tot_inc Continuous Values in US$
(monthly)
Net consumption after education ncaedex** Continuous Income minus 3. and 4. Values in US$.
expenditures on the child. (monthly)
Per-capita income of the household pc_inc *** Continuous Values in US$
Gender of the child Gender*** Dummy 0= Male
1=Female
Age of the child age *** Discrete In years
School Year sch_year*** Discrete 0 for not enrolled
26
More details on the variables and the construction methods are presented in section IX in Annex 1.
VARIABLE NAME NAME IN TYPE NOTES
MODEL
Index of deviation from ideal age in ed_dev*** Continuous
current school year
First Child dum_1st*** Dummy 1 = oldest child
0 = other
Mother with Primary Education moth_pri*** Dummy 0 = no
1 = yes
Mother with Secondary Education moth_sec*** Dummy 0 = no
1 = yes
Mother with Superior Education moth_uni*** Dummy 0 = no
1 = yes
Father with Primary Education fath_pri*** Dummy 0 = no
1 = yes
Father with Secondary Education fath_sec*** Dummy 0 = no
1 = yes
Father with Superior Education fath_uni*** Dummy 0 = no
1 = yes
Average age of the members of the avg_age *** Number It is expected that households with older
household members will have less interest in children
education than younger ones
Location location*** Dummy 1 = Urban
0 = Rural
Region reg*** Dummy 1 = Highlands
0 = Coast
Households with adequate ad_accom*** Dummy 0 = Inadequate
accommodation 1 = Adequate
Overcrowded households ocrw_hh*** Dummy 0 = no
1 = yes
Education Supply Index IOE98**** Index
Last week work [paid] (child >=10) wrk_l_wk*** Dummy 0 = Did work (paid)
1 = Did not work (paid)
Last week work [unpaid] (child >10) wrk_u_wk*** Dummy 0 = Did work (unpaid)
1 = Did not work (unpaid)
Students per teacher (primary public) ap_p_pub**** Continuous
Students per teacher (primary private) ap_p_pri**** Continuous
Students per teacher (secondary public) ap_s_pub**** Continuous
Students per teacher (secondary private) ap_s_pri**** Continuous
Return for education omega ***** Continuous Wage 40 : US$ /hour
Last year of education approved study*** Discrete In years
Household has a business indep*** Dummy 0 = no
1 = yes)
Household owns or hires a farm farm*** Dummy 0 = no
1 = yes
Notes: * Dependent variable in the model; ** Consumption in the model; *** Socio-economic characteristics utility - disutility derived from
education, **** Education quality approximation variables explaining non-observable differential in economic benefits, and ***** OMEGA
approximation of future economic benefits derived from education.
Recall 15 and include the decision variable ENROLL,
eU m
Prob(ENROL L i = m) = 2
∑e
m=0
Um
the functional form of the utility function for primary education is:
Upim = β1 ln( NCADEX) + β2 PC _ INC + β 3GENDER+ β4 AGE + β5 ED _ DEV + β6 DUM _ 1ST + β 7 MOTH _ PRI
+ β 8 MOTH_ SEC + β 9 MOTH _ UNI + β10FATH _ PRI + β11FATH _ SEC + β12FATH _ UNI (25)
+ β13 AVG_ AGE + β14LOCATION+ β15REG + β16 AD _ ACCOM+ β17 AP _ P _ PUB
+ β18 AP _ P _ PRI + β19OMEGA+ β20 FARM + β 21INDEP+ β 22IOE98 + β 23STUDY+ ε

and that for secondary education:
Usmi = β1 ln( NCADEX) + β 2 PC _ INC + β3GENDER + β4 1/ ED _ DEV + β5 DUM _ 1ST + β6 MOTH _ PRI
+ β 7 MOTH _ SEC + β8 MOTH _ UNI + β9 FATH _ PRI + β10FATH _ SEC + β11FATH _ UNI (26)
+ β12 AVG_ AGE + β13LOCATION+ β14REG + β15AD _ ACCOM+ β16 AP _ S _ PUB + β17 AP _ S _ PRI
+ β18OMEGA+ β19FARM + β20 INDEP+ β21STUDY+ β22 PROVINCE + ε
It is crucial to notice that children that did not finished with primary school are not able to enrol in
secondary education. So, in order to avoid problems of misspecification and of inclusion of
irrelevant alternatives for a certain proportion of the population, the model for secondary education
considers a sub sample of children that finished primary education, as explained in Table 5 in the
next section.
V.3. Estimating Expected Returns to an Additional Year of Education
The main difference with previous analysis is the fact that the economic specification of the model,
as well as the econometric specification includes a variable that is intended to measure the monetary
returns for staying enrolled in education.
There is a vast literature in the field, in which several approximations have been used to calculate
earning equations and derive the private and social returns to education. In general the discussion
pre 1995, in which David Card (Card 1995) survey different methods used to estimate the returns to
education, was concentrated in the nature of the specification of the model, as well as if it is
necessary to use instrumental variables procedures or systems of simultaneous equations in order to
avoid endogenity problems. Card findings and conclusions are that simple cross-sectional OLS
estimates of the return to education are generally biased downward (conservative approach)
“relative to the most sophisticated approach” (pp 44).
This approach basically consists in an hedonistic pricing approach, which is based in the
Characteristics Theory of Value. The theory assumes that the value of complex goods, like housing
and in this case labour, depend on a group of characteristics. Assuming weak separability of
preferences, it is assumed that the value could be disaggregate in terms of its individual
characteristics. Under these assumptions, it is possible to estimate the components of the earnings
using regression analysis
The most common danger in calculating hedonic price equations is the potential bias associated
with elements that tend to segment the market. Because of this, one crucial point is the way in
which the model is specified, as well as testing for problems in misspecification of the mean.
For this particular study, the objective is to assign a specific value at the moment in which the
decision of enrolment is made in order to incorporate a specific measure of economic returns to
education. In order to do so the Earning function has been defined as follows:
ln w i = β 0 + β 1 * estudioi + β 2 * EXPi + β 3 * EXP 2 i

(27), where ln wi is the natural log of the
+ β 4 * REGAREA i + β 5 * genderi + ε i
earnings, and EXP and EXP2 are variable that approximate the experience in the conventional way27.
In order to estimate the model the following procedure 8937 cases were selected28. The model was
run in PCGIVE and the results were as shown in Table 4.
27
Experience = Age – 6 – years of study.
The reset test allow the rejection of the null hypothesis of misspecification of the model, meanwhile
a Wald test indicates that the socio-economic variables could not been excluded without creating a
problem of mis-specification.
Table 4
Earning Equation
Variable Coefficient Std.Error t-value t-prob HCSE
Constant 9.12 0.07 133.42 0.00 0.07
ESTUDIO 0.11 0.00 36.83 0.00 0.00
EXP 0.04 0.00 13.18 0.00 0.00
EXP2 - 0.00 0.00 - 10.16 0.00 0.00
REGAREA - 0.02 0.00 - 7.66 0.00 0.00
GENDER - 0.31 0.02 - 13.19 0.00 0.02
R2 = 0.18 F (5,8931) = 401.08 0.0000
This results were used in order to predict the estimated returns to education for enrolled and not
enrolled children. In the case of the first ones, an additional year of schooling was considered.
VI. THE DATA
The 1999 Living Standard Survey29 is the third application of a survey that was originally
developed by the Government of Ecuador and the World Bank for a study in 1994.
The 1999 Survey is representative in national, regional and location terms. There are 5,824
households and 25,980 individuals in the database. In order to study the demand functions for
primary and secondary education the first step was to create a common identification code for every
household and assign the relevant characteristics of the household to be used in the analysis to every
member. Then the cases were selected following the criteria presented in Table 5.
TABLE 5: CRITERIA FOR CASE SELECTION

PRIMARY EDUCATION SECONDARY EDUCATION
INCLUSION ü All cases ü All cases
CRITERIA
EXCLUSION • Under six years old not • Children older than 18 years old and not enrolled in
CRITERIA enrolled in primary education secondary education.
• Over twelve years old not • Children under 12 years old not enrolled in secondary
enrolled in primary education education.
• Under 12 years old enrolled in • Children in age range, not enrolled in secondary
secondary education education and that did not finish primary school.30
• Cases with NCAEDEX • Cases with NCAEDEX variable.
variable. • Persons in the age range, enrolled or not, that are coded
• Cases with enrolment = as head of the household or partner of the household head.
missing • Cases with enrolment = missing
The total number of cases selected was 7,067: i) 4,178 for the analysis of primary and ii) 2889 of
secondary education.
28
Individuals reporting strictly positive earnings in the survey and under 65 years old.
29
Encuesta de Condiciones de Vida. INEC, Gobierno del Ecuador. 1999
30
Before this selection both groups were almost the same size.
The main tables resulting from the statistical analysis are presented in Annex 1. However, there are
some interesting results that are useful in order to understand the model results and put the analysis
in the context of the socio-economic situation prevailing in Ecuador.
VI.1. The General Context
Ecuador suffered during the last quarter of 1998 and the middle of 1999 the most catastrophic
macroeconomic crisis of its history, whose conclusion was the bankruptcy of 60% of the financial
system and the collapse of the GDP in US dollars from US$ 20 billion to US$ 11.5 billion31.
However, before this episode, Ecuador did already poorly in macroeconomic, but also in
redistributive terms, being the country with the worst income distribution in Latin America32. The
estimation of the poverty headcount33 was of 57% in 1998. This figure rises above 65% in 1999. As
expected, this is reflected in the fact that 65% of the cases correspond to children that belong to
families whose per capita monthly income is less than US$30, and 87.7% of the cases are below
US$ 60/month.
VI.2. Enrolment
The greatest proportion of children in the sample are enrolled in public education, 18% is not
enrolled and 20.7% is enrolled in private schools. The proportion of children not enrolled in
primary education is 8.5%. This figure reaches 32.6% of the children in the secondary education
level. The proportion of children attending to private schools is 22.2%. This figure reaches 30.1%
of the enrolled children in the secondary education level what denotes relative higher importance of
the private sector in secondary education.
VI.3. Socio-economic characteristics
Some descriptive characteristics per enrolment condition are shown in Table 6. The general
characteristics of the children in condition of non-enrolment in the sample confirm the national
tendencies. The average per capita income of households with non-enrolled children in primary
school-age is US$ 18.5 per month, and the total income is US$124 on average. The average age of
family is lower than that for the whole sample and the education level is very low, 1.3 years of
education on average. The overall accommodation conditions are also far below the whole sample
conditions. The case of secondary non-enrolled children is quite different; they belong to
households with an family income of US$170 and per capita income of US$27 per month. The
average educational level of the family is also higher, however not higher than primary levels. In
both cases, the referential council index of provision of educational services is similar to the
national average, however it is a little lower. In both cases more than half of the families are land or
farm owners.
In addition, when crossing the per capita monthly income of the household with enrolment it is
shown that 75.1% of the children that are not enrolled belong to households with per capita income
lower than US$1 / day. Adding the number of non-enrolled kids that live in families with income
bellow US$ 2 / day this proportion rises to 94.5%.
31
The population in 1999 was estimated in 12.3 million.
32
Interamerican Development Bank, 1999.
33
Defined in international standard terms: those whose disposable income is less than US$ 2 per day. The absolute
poverty line is defined ay US$ 1 / day.
The households with primary school aged children enrolled in public education have higher income
levels than those analysed before (US$150 per month) , however they are still below the average of
the whole sample, and their per capita income is a little lower than the case of non-enrolled
secondary children. These households have also better accommodation conditions. The average age
of the household members is 2 years older than when children are not enrolled, but the education
level is not far from it; in fact, it does not seem that there are parents with secondary education in
these households (maximum value is 6 years). In the case of secondary aged children in public
education, the general economic situation of the households they belong too is nearly the same as
the average in the whole sample (US$134 per family and US$ 35 per capita a month), but still a
little lower. However, the accommodation conditions are by much higher than the whole sample
averages. The age of the household’s members is not very different from the case of non-enrolment,
but the education levels are 2 years higher.
The most substantial economic differences are found in children attending private education. In
primary cases, the family and per capita incomes (US$268 and US$57 per month) are nearly twice
the average values of families with children in public education, and the accommodation conditions
are close to the maximum index. The average family income assigned to secondary enrolled
children is1.3 times the case of public enrolment (US$ 330), and per capita income (US$58) is
twice as much that case. The average age of these households and the average years of education
are not far from the cases of public enrolment, however the indicator showing the referential council
provision of educational services is lower for the case of private primary enrolled children, and the
maximum values show that there are members who completed the secondary education (which was
not the case of households with not enrolled or enrolled in public services). Not surprisingly, the
sample did not catch parents with completed superior education, neither in the case of having
children in private secondary schools. Conversely, higher levels of education and private enrolment
are not associated with the tenure of lands or farms.
TABLE 6: DESCRIPTIVE STATISTICS PER ENROLMENT CONDITION

Primary Secondary
Min. Max. Mean Std. Dev. Min. Max. Mean Std. Dev.
Non-Enrolment condition
HHold income US$/month 0.25 2,028.52 134.36 185.70 1.41 3,776.14 170.08 181.89
Net consumption after
education US$/month 0.25 2,028.52 134.36 185.70 1.41 3,776.14 170.07 181.91
Per capita income in
US$/month 0.06 288.47 18.48 23.62 0.18 755.23 26.73 33.55
Average age of the members of
HH 9.33 48.33 19.57 6.57 11.44 63.75 24.36 7.59
Adequate accommodation 0.00 1.00 0.45 0.50 0.00 1.00 0.66 0.47
Education supply index/100 26.65 67.57 40.43 9.47 26.65 67.57 42.00 9.41
Average ys. study per HH 0.00 6.00 1.30 2.08 6.00 12.00 6.62 1.42
Land or farm tenure 0.00 1.00 0.57 0.50 0.00 1.00 0.55 0.50
Enrolment in public education
H.Hold income US$/month 1.41 2,794.25 150.01 173.72 4.94 3,508.52 202.57 217.34
education US$/month 0.01 2,789.17 146.90 173.12 0.94 584.75 34.80 38.24
US$/month 0.18 752.12 24.35 32.48 0.76 3,501.57 194.83 216.96
HH 6.88 54.00 20.80 6.28 13.50 59.33 25.21 6.27

Primary Secondary
Min. Max. Mean Std. Dev. Min. Max. Mean Std. Dev.
Enrolment in private education
Hhold income US$/month 5.08 2,979.94 286.51 316.55 2.82 2,711.86 359.68 372.50
education US$/month 0.16 2,877.82 268.44 305.30 0.40 874.13 68.08 77.70
US$/month 0.64 744.99 57.04 68.61 2.10 2,666.53 330.81 356.48
HH 10.60 52.25 22.24 6.23 12.20 57.25 27.16 6.98
SOURCE: ECV 1999
VI.4. Gender and area
The proportion of boys (18.1%) that are not enrolled is higher than the same proportion in the case
of girls (17.8%). Similarly, the proportion of girls (21.9%) enrolled in private schools is slightly
bigger than that of boys (19.5%).
As well as for income variables, location is key element to explain the enrolment situation. 71.6%
of non enrolled children in primary age and 69.2% in secondary age are in rural areas. In the case of
public education, majority of the primary students are located in rural areas, whereas in secondary
most of public education students are in urban areas. Private education is dominated by urban
students.
VI.5. Background
As seen before, an important factor to explain the enrolment decision is the family background.
Generally, lower levels of education of the parents are associated to lower levels to lower
probabilities of enrolment, and private education of the parents is associated with private education
of the children, especially in the case of none or basic education levels of the parents.
However, there are some indicators worth noticing. For example, primary education of the mother
in rural areas is a dominant factor in the case of children in public education, however an important
proportion of non enrolled children’s mothers have no education (34.4% in the rural areas, 2.38% in
the urban areas). Secondary education does not mean much change in the choice of the type of
education of the children in urban areas, while it does in rural areas. 28% of the children enrolled in
private education versus 9.6% of those enrolled in public education belong to households with
secondary educated mothers, whereas in the urban areas these proportions are closer to each other.
Superior education, on the other side, explains much more the change from public to private
enrolment of the children in both areas. However, there is an 11.5% of the private students in rural
areas whose mother has none or basic education.

TABLE 7: ENROLMENT CONDITION PER EDUCATION OF THE MOTHER AND

AREA
Enrolment condition
Enrolled in public Enrolled in private Total
Area/ education level Not enrolled education education
None to basic 305 515 36 856

34.4% 24.3% 11.5% 25.8%
553 1375 172 2100
primary
62.4% 64.8% 55.0% 63.3%
25 204 89 318
Rural secondary
2.8% 9.6% 28.4% 9.6%
3 27 16 46
superior
0.3% 1.3% 5.1% 1.4%
886 2121 313 3320
Total
100.0% 100.0% 100.0% 100.0%
None to basic 91 227 61 379

23.8% 10.2% 5.3% 10.1%
193 987 273 1453
primary
50.4% 44.6% 23.8% 38.8%
74 805 480 1359
Urban secondary
19.3% 36.3% 41.8% 36.3%
25 196 335 556
superior
6.5% 8.8% 29.2% 14.8%
383 2215 1149 3747
Total
100.0% 100.0% 100.0% 100.0%
SOURCE: ECV 1999
VI.6. The cost and quality of education
Comparing the individual cost of education with the per capita income of the children, the data
show that the direct cost associated with public education in secondary is 3 times higher than in
primary. Moreover, the proportion of the per capita income spent in secondary public education is
higher than any other option. This might help to explain the high rates of non-enrolment in this
case. Another interesting result is that there is not much difference in the rates from primary to
secondary private education, indicating that the relative “effort” that the family makes to enrol a
child in secondary does not change much in the case of private schools, despite the fact that the
proportion of the family’s total income spent in education expenditures is higher in any private
option.
TABLE 8: RELATIVE COSTS OF EDUCATION

Public Private Total
Direct cost of education per child as a Primary 27% 44% 29%
proportion of per-capita income Secondary 61% 41% 32%
Opportunity cost of education per Primary
child as a proportion of per-capita
income Secondary 51% 29% 73%
Proportion of family income spent in Primary 5% 9% 4%
education Secondary 7% 11% 6%
It is worth noticing also that the opportunity cost of a child enrolled in public secondary education
is significantly higher than for the case of private education. This might be explained because of the
income levels of the families associated with public secondary education, as well as the quality

levels of this option, which might be sending a lower “sign” to the market in terms of expected
earnings (see calculation of opportunity costs, explained before).
Related to this, the most important opportunity cost of education is that of earnings from work. The
data shows that 68% of the children who where not enrolled in education worked in a paid job. This
proportion in the case of children in public education changes to 36.4%; it is worth noticing that 7%
of these children were unpaid workers, and in the case of children enrolled in private education,
there is an important proportion, 25.2% of paid workers.
Except for the case of the deviation from the ideal age in each level, quality indicators are
calculated on a territorial basis (per council34). The data shows that quality seems to be an important
referent for the decision in the case of primary education, yet the indicators do no differ much from
one another, except for the number of students per teacher and per classroom. In the case of
secondary, the number of children per classroom and per teacher in private schools is lower than in
the public case, but the other performance indicators are quite similar. However, in both levels the
referential performance indicator is 20% higher in the case of private education than in the public
case. Theses values are shown in Table 9.
TABLE 9: RELEVANT REFERENTIAL QUALITY INDICATORS: DESCRIPTIVES

Std.
Minimum Maximum Mean Deviation
Option: public primary
Deviation from ideal age 29.17 147.86 101.63 14.48
Students per teacher (primary public) 10.15 67.5 32.05 14.23
Students per teacher (primary private) 2.9 62 24.39 15.03
Students per classroom (primary public) 10.46 45 27.44 5.38
Students per classroom (primary private) 2.64 62 22.04 7.30
Option: Primary private
Deviation from ideal age 40 150 106.9 11.23
Students per teacher (primary public) 13.77 67.5 31.75 11.08
Students per teacher (primary private) 2.9 62 20.81 11.94
Students per classroom (primary public) 14.47 35.90 29.59 4.06
Students per classroom (primary private) 2.63 34.15 20.66 4.54
Option: Public secondary
Students per teacher (secondary public) 2.54 18.69 13.80 3.95
Students per teacher (secondary private) 3.00 19.79 10.46 3.11
Students per classroom (secondary public) 2.00 45.06 28.72 11.16
Students per classroom (secondary private) 4.40 32.50 15.70 3.46
Option: Private Secondary
Students per teacher (secondary public) 3 18.69 14.12 3.83
Students per teacher (secondary private) 3.65 19.79 10.23 2.87
Students per classroom (secondary public) 4.6 45.05 30.88 10.85
Students per classroom (secondary private) 5.57 32.5 15.36 3.12
SOURCE: ECV 1999
VII. RESULTS
Two models were run: one for primary and one for secondary education. In both cases the
procedure was as follows: i) run the original model, ii) test for misspecification running a reset test,
34
Ecuador is divided administratively into 20 provinces and 214 councils.
iii) test if the coefficients that were not significant were simultaneously 0 using a Wald test, iv)
testing if the assumption of independence of irrelevant alternatives hold, and v) calculate the
marginal effects for the selected model. The significance level used in the analysis was 95%.
The econometric results obtained using LIMDEP are presented, extensively, in Annex 2.
VII.1. Primary Education
The original model was run using the specification given in equation 25. The pseudo R squared 35
for the model was 0.3134 and the percentage of correct predictions was 79.2%. After performing
the reset test it was possible to accept the null hypothesis of correct specification of the model at the
selected significance level. The Wald test allows us to reject the null hypothesis that the coefficients
with insignificant b/st.err. values were simultaneously 0. So the model specification was accepted.
In order to check if the assumption of independence of irrelevant alternatives hold, the model was
forced to collapse to a binary logit and a likelihood ratio test was carry one. The results allow to
reject the hypothesis that both models are similar. So the multinomial specification was accepted.
TABLE 10: PREDICTED VALUES OF THE MULTINOMIAL LOGIT MODEL FOR

PRIMARY EDUCATION
PREDICTED
ACTUAL Not enrolled Public Private TOTAL
Not enrolled 57.5% 41.0% 1.5% 57.5%
Public 1.1% 93.7% 5.2% 93.7%
Private 0.3% 61.4% 38.3% 38.3%
TOTAL 83.6% 80.6% 67.8% 79.2%
VII.1.1. Interpretation of Parameters
In terms of the correct predicted cases, it is possible to say that our model relatively fails to explain
the non-enrolment and the private enrolment, especially the latest. Regarding the coefficients, given
the fact that the multinomial logit solving technique requires to drop one option for the calculation
(option 0 = no enrolment in our case), the coefficients for the two analysed cases may be
misleading36.
So, the parameter interpretation is concentrated on the marginal effects on the probability derived
for all the choices. The marginal effects in the multinomial logit model are defined as follows:
∂π
MEff =
j
(27)
∂xi
So, considering our economic model, the marginal effects are the partial derivatives of the
compensated demand function with respect to every characteristic defining the utility function.
A summary of the results from the analysis is presented for every choice in Table 11. So, the
demand function for not enrolment in education is increasing in the log of total income (equivalent
to NCAEDEX for this choice), in the dummy variable that captures that the father did not study
35
Mc Fadden pseudo R2=1-(Lur/Lr), where Lur is the unrestricted log likelihood function and L0 is the restricted one.
36
Greene (2000)
further than primary education, ED_DEV_1, LOCATION, FARM and STUDY, denoting that the
non enrolment is affecting, positively and significantly the income of the family; that it is more
probable when living in the rural area having a farm and when the number of approved years of
study increases and the child is older than supposed to be at the current school year.
On the other hand, this demand function is decreasing in the per capita income (slowly, almost
zero), gender, age, the (secondary) education of the mother37, region, the pupil/teacher ratio in
public schools, the return to education and the inverse of the education supply index (IOE98_1).
The first coefficient is hard to interpret and the result could be associated with the fact that under
this specification of the per capita income small variations in the disposable income does not affect
the enrolment decision. The other parameters have the expected signs: males are more likely not to
be enrolled, children at the age of six (could be a temporal effect as explained in the descriptive
statistic analysis); meanwhile children with educated mothers are more likely to be enrolled.
However, living in the coastal region seems to have a negative probability in enrolment 38, so as low
education quality, reflect in higher teacher/students ratios and low levels of the education supply
index. As expected for this option, the coefficient of OMEGA (economic return for education) is
negative.
TABLE 11: SUMMARY OF THE MODEL MARGINAL EFFECTS FOR PRIMARY

EDUCATION
Coefficient Standard Error Coefficient Standard Error Coefficient Standard Error
Variables Marginal effects on Prob. Y=0 Marginal effects on Prob. Y=1 Marginal effects on Prob. Y=2
ln (net consumption) 0.0068 0.0015 -0.0054 0.0075 -0.0014 0.0075
Per capita income -0.0003 0.0001 -0.0004 0.0002 0.0007 0.0002
Gender -0.0605 0.0090 0.0565 0.0291 0.0040 0.0281
Age -0.0202 0.0032 0.0210 0.0120 -0.0008 0.0116
Inverse of the deviation from ideal age 24.1647 3.5147 -3.1455 10.3130 -21.0192 9.7909
First child effect -0.0045 0.0031 -0.0623 0.0146 0.0668 0.0144
Mother with primary education -0.0040 0.0022 -0.0760 0.0221 0.0800 0.0221
Mother with secondary education -0.0108 0.0037 -0.1382 0.0237 0.1490 0.0236
Mother with hugher education -0.0003 0.0065 -0.2341 0.0300 0.2344 0.0292
Father with primary education 0.0065 0.0023 0.0550 0.0161 -0.0615 0.0160
Father with secondary education 0.0047 0.0034 0.0224 0.0178 -0.0271 0.0176
Father with higher education 0.0006 0.0064 -0.0786 0.0233 0.0780 0.0224
Average age of the household 0.0003 0.0001 -0.0030 0.0010 0.0027 0.0010
Location 0.0108 0.0029 -0.0901 0.0168 0.0793 0.0166
Natural region -0.0256 0.0043 0.0800 0.0185 -0.0544 0.0182
Adecuate accomodation dummy -0.0039 0.0020 -0.0613 0.0140 0.0651 0.0140
Pupil/teacher ratio in public schools -0.0004 0.0002 -0.0063 0.0011 0.0067 0.0011
Pupil/teacher ratio in private schools 0.0001 0.0001 0.0007 0.0008 -0.0008 0.0008
Expected return to education -0.2786 0.0406 0.3601 0.1145 -0.0815 0.1091
Dummy farm 0.0107 0.0027 0.0529 0.0185 -0.0635 0.0185
Dummy other family business -0.0019 0.0019 0.0137 0.0117 -0.0118 0.0116
Educational supply index 1.3764 0.3865 11.2551 2.8064 -12.6315 2.8045
Achieved years of study 0.0377 0.0053 -0.0422 0.0133 0.0045 0.0124
With respect to the other two alternatives, it is not possible to reject the hypothesis that the
coefficient of the log of the net consumption after education is zero. However, as expected, the
demand function for public education is decreasing in per capita income (PC_INC), denoting higher
37
The coefficient of MOTH_PRI is also negative, but could be accepted to be different from zero at a slightly higher
significant level than that defined ex-ante.
38
This fact is reflecting the existence of two different schooling regimes in the highlands and the coast. At the time of
the data collection there were children in age to enroll in first grade that were not enrolled in this region because classes
begin in April. It also is explained due to the impact of the “El Niño” climatic phenomena that affected the coastal area
until January 1998.
probabilities of disenrolment, meanwhile this parameter is positive for private education, denoting
that this option is more likely to be taken by households with higher incomes.
The sign for the expected return to education (OMEGA) is positive, as expected, for the public
education option and zero for the private one. As expected for both options, the education level of
the parents is explaining positively each option. However, this fact seems more to be an explanation
of the enrolment decision, rather than the education choice. The quality parameter introduced for
private schools (students per teacher) fails to explain the decision of the household, denoting that
the important variable is the relative good or bad quality of the public option. This is absolutely
rational from the point of view of the family, given that private education is more expensive.
Overall, the most important variables affecting the household decision are the inverse of the
deviation from ideal age, which highly explain (positively) the non-enrolment and (negatively) the
enrolment in private education, and the educational supply index. This result means that the current
system in which children are promoted from one school year to another in terms of their overall
learning achievements might be the main reason why children leave school and why they leave
private to enrol in public education.
With respect to the education index supply, the most important fact will be that investments in new
schools and educational facilities are very important in explaining the enrolment in public education
and a higher probability of non enrolment in private education.
VII.2. Secondary Education
Only children that finished primary school are able to continue with secondary school. This implies
that the choice of the households in terms of the given three alternatives is only possible for
children that did finish with primary education. In order to apply the multinomial logit model
specified in equation 26 it was necessary to select only cases of children that finished with primary
school.
The pseudo R2 for the model was 0.56, which could be considered high for a crossectional analysis.
The percentage of correct predictions is 81.1%, but relatively failing to explain the choice of
enrolment in private education institutions.
Performing the reset test, it was possible to accept the null hypothesis of correct specification of the
model at the selected significance level. The Wald test allows us to reject that the coefficients with
insignificant b/st.err. values were simultaneously 0. So the model specification was accepted.
TABLE 12: PREDICTED VALUES OF THE MULTINOMIAL LOGIT MODEL FOR

SECONDARY EDUCATION
PREDICTED
ACTUAL Not enrolled Public Private TOTAL
Not enrolled 95.5% 4.4% 0.1% 95.5%
Public 1.0% 93.6% 5.4% 93.6%
Private 1.9% 69.0% 29.1% 29.1%
TOTAL 97.3% 74.1% 69.8% 81.1%
The test for the analysis of Independence of Irrelevant Alternatives was made and the null
hypothesis that the multinomial and binary logits were equal was rejected.

VII.2.1. Interpretation of Parameters
A summary of the results obtained from the analysis, considering the obtained signs and the result
of the hypothesis testing that the coefficients are equal to zero is presented for every choice in Table
13. The demand function for not enrolment in education is increasing in the total income
(equivalent to NCAEDEX for this choice), but this coefficient is not statistically different from
zero. It also increases in ED_DEV_1, AP_S_PUB, WRK_U_WK, FARM and STUDY. This
denotes that children that were not continually enrolled or that fail to “pass the year 39”, in areas
where the education quality is lower, working unpaid in the family, especially if there is a farm, and
that achieved higher grades of education40 are more likely not to be enrolled.
On the other hand, the probability of not being enrolled is decreasing in GENDER, DUM_1ST,
REG AND OMEGA; denoting that females, the eldest child in the family, and the children leaving
in the highlands are more likely to be enrolled. The sign of OMEGA is the expected for this choice.
With respect to the other two alternatives, it is not possible to reject the hypothesis that the
coefficient of the log of the net consumption after education expenditures (NCAEDEX) is different
from zero for the public education choice, but it is different from zero and negative for the second
one 41. The negative sign could denote the fact that households enrolling children in private schools
must be compensated to accept another educational choice. In addition, as expected, the demand
function for public education is decreasing in PC_INC for the public option and increasing for the
private one, like in the case of primary education, denoting higher probabilities of disenrolment for
the public option and that the option for private education is more likely to be chosen by households
with higher incomes.
The sign for OMEGA is positive in both cases, as expected. For both options the educational level
of the parents is explaining positively the elected choice. Again, this fact seems to explain the
enrolment decision. For both cases, the educational level of the mother, particularly her enrolment
in primary education has a positive impact on the probabilities. The quality parameters fail to
explain the enrolment decision of the household.
Two important parameters are the coefficients for the variables associating the fact that the child is
working, paid or unpaid. The observed values are relatively important. The probability of being
enrolled in public education is decreasing in the variable of paid work and increasing if work is
unpaid. The first indicates that children working in the labour market are more likely to leave
school that those helping in the productive activities of the household. In the case of private
education the demand function is increasing in paid work and decreasing in the unpaid one. One
explanation to this result is that there is an important proportion (25%) of children enrolled in
private schools that are working, denoting that NCAEDEX is increasing, as well as PC-INC when
children are participating in the labour force, allowing the family to spent on quality education.
Meanwhile children working within the household are more likely to leave private schools and
enrol in public ones. (Annex 1, last section)
As expected, the demand for public education is decreasing in the variable of adequate
accommodation meanwhile that of private enrolment is increasing. So, considering housing a proxy
39
Fail to be promoted to the next level.
40
This coefficient may be biased by the fact that children who did not complete primary education were excluded from
the analysis.
41
However it is very tiny 0.00278
of the well-being of the household and long term wealth, it is concluded, again, that household with
higher wealth stocks are more likely to buy education in the private education market.
TABLE 13: SUMMARY OF THE MODEL MARGINAL EFFECTS FOR SECONDARY

EDUCATION
Coefficient Standard Error Coefficient Standard Error Coefficient Standard Error
Variable Marginal effects on Prob. Y=0 Marginal effects on Prob. Y=1 Marginal effects on Prob. Y=2
ln (net consumption) 0.0103 0.0058 0.0155 0.0167 -0.0258 0.0158
Per capita income 0.0001 0.0001 -0.0021 0.0004 0.0020 0.0004
Gender -1.0278 0.1498 0.7154 0.1273 0.3124 0.0769
Age 0.0226 0.0091 -0.0100 0.0178 -0.0126 0.0167
Inverse of the deviation from ideal age 124.4404 19.4269 -115.9307 24.1936 -8.5098 20.0864
First child effect 0.0155 0.0104 -0.0210 0.0246 0.0056 0.0236
Mother with primary education -0.0216 0.0119 0.0850 0.0377 -0.0634 0.0367
Mother with secondary education -0.0452 0.0173 0.0077 0.0411 0.0375 0.0390
Mother with hugher education -0.0449 0.0251 -0.0320 0.0499 0.0769 0.0457
Father with primary education -0.0139 0.0115 0.0110 0.0315 0.0030 0.0306
Father with secondary education 0.0038 0.0148 0.0021 0.0351 -0.0060 0.0337
Father with higher education -0.0330 0.0247 -0.0848 0.0428 0.1178 0.0383
Average age of the household -0.0006 0.0006 -0.0051 0.0017 0.0057 0.0016
Location 0.0257 0.0156 -0.0574 0.0392 0.0317 0.0378
Natural region -0.5545 0.0819 0.3960 0.0732 0.1584 0.0478
Province 0.0000 0.0000 0.0004 0.0001 -0.0005 0.0001
Adecuate accomodation dummy -0.0150 0.0106 -0.1447 0.0322 0.1597 0.0318
Pupil/teacher ratio in public schools 0.0004 0.0017 -0.0026 0.0045 0.0022 0.0044
Pupil/teacher ratio in private schools 0.0052 0.0029 0.0095 0.0067 -0.0147 0.0065
Expected return to education -2.6528 0.3795 1.9165 0.3092 0.7363 0.1720
Dummy farm 0.0082 0.0126 -0.0158 0.0332 0.0076 0.0322
Dummy other family business 0.0089 0.0092 -0.0294 0.0222 0.0206 0.0213
Educational supply index -2.1836 1.5730 21.0388 4.4950 -18.8552 4.3815
Achieved years of study 0.3250 0.0459 -0.2223 0.0394 -0.1027 0.0240
Overall, the most important variables affecting the household decision are the same as in the case of
primary education. However the inverse of the deviation from ideal age is not statistically different
from zero for the private option. This is the case of the coefficient for the educations supply index
for the non-enrolment option.
The statistically significant coefficients for the two variables are even more important than in the
case of primary education, denoting that the availability of facilities and the performance of the
children in school are more important in terms of explaining the decision of the household. This is a
very interesting finding, because in Ecuador it is generally assumed that the cost of education plays
is the main factor explaining the decision of enrolment.
VIII. POLICY IMPLICATIONS

The marginal probabilities in each case could be used in order to assess the impact on enrolment
and on the schooling choice. However, the government is constraint to a set of feasible policy
alternatives that basically include cash or in kind transfers, as well as public investment on the
provided services.
In order to assess the impact of targeted cash transfers to families with an income bellow US$ 30
per capita per moth, the predicted values were analysed for different options and contrasted with the
results of the basic model.

TABLE 14: SIMULATIONS OF CASH TRANSFER

PRIMARY
ACTUAL PREDICTED
A 0 1 2 TOTAL
C 0 188 134 5 327
T
U 1 34 2788 154 2976
A 2 3 537 335 875
L TOTAL 225 3459 494 4178
+ US$ 10 PREDICTED
A 0 1 2 TOTAL
C 0 195 128 4 327
T
U 1 34 2791 151 2976
A 2 3 536 336 875
L TOTAL 232 3455 491 4178
+ US$ 5 PREDICTED
A 0 1 2 TOTAL
C
0 195 127 5 327
T
1 33 2792 151 2976
U
A 2 3 537 335 875
L TOTAL 231 3456 491 4178
As shown in Table 14 a policy of transfers will have no effect in leading families to re-enrol
children that have already leave school, as well as will not change in the short term the decision of
enrolment of the household.
TABLE 15: SIMULATIONS OF CASH TRANSFER

SECONDARY
ACTUAL PREDICTED
A 0 1 2 TOTAL
C 0 900 41 1 942
T
U 1 14 1273 73 1360
A 2 11 405 171 587
L TOTAL 925 1719 245 2889
+ US$ 10 PREDICTED
A 0 1 2 TOTAL
C 0 900 41 1 942
T
U 1 14 1273 73 1360
A 2 12 408 167 587
L TOTAL 926 1722 241 2889
+ US$ 5 PREDICTED
A 0 1 2 TOTAL
C
0 900 41 1 942
T
1 14 1273 73 1360
U
A 2 12 407 168 587
L TOTAL 926 1721 242 2889
Similar results are derived for the case of secondary education and show in Table 15. A bigger
impact on enrolment might be obtained if more and closer schools are constructed and operated, as
indicate by the marginal probability of the inverse supply index of education.

Another interpretation might be that the model predictions are that an increase in fees would not
result in fewer children attending schools. Moreover, if the additional resources are used to improve
the local supply if education and the quality of the service, what would result in less children
“losing” the year, it might be the case that an increase in schooling figures would be expected.
IX. CONCLUSIONS
The demand functions for three different enrolment decisions in education were analysed for
primary and secondary education. The technique used has demonstrated to be useful to calculate
coherent models that are consistent in terms of explaining the marginal effects of the elements of
the utility function over the demand function.
It is particularly interesting that the economic model and econometric specification include an
innovative approach to the theme, including a more detailed specification of the utility derived from
the consumption of education, particularly including the expected economic returns. This variable is
very important in terms of the marginal effects over the probabilities of choosing the different
options.
On the other hand, the results using this specification as well as the 1999 ECV dataset lead to
different results in terms of signs, as well as in magnitudes of the results and the marginal
probabilities from those obtained by Young an others (1997) using the 1994 ECV data. Of
particular importance is the different magnitude and sign of the net consumption after education
independent variable. Assuming that Young and others (1997) model is well specified, the change
might be a consequence of the fast and sever reduction in income suffered by the Ecuadorians due
to the 1998-99 economic crisis.
However, the results show that the cost is not decisive in terms of explaining the enrolment option.
The socio-economic characteristics tend to be more important in the decision, as well as indicators
of quality and access to education facilities.
X. BIBLIOGRAPHY
1. Alderman, H., Behrman J.R., Kahn S., Ross D.R. and Sabot R.; Public Schooling
Expenditures in Rural Pakistan: Efficiently Targeting Girls and a Lagging Region, in: Van
de Walle, D and Nead, K (eds). Public Spending and the Poor. Theory and Evidence; pp.
187-221. World Bank, John Hopkins University Press, 1996.
2. Arrow K., A utilitarian approach to the Concept of Equality in Public Expenditures,
Quarterly Journal of Economics, Vol. 85, No. 3, 1971, pp. 409 - 415.
3. Atkinson, A., The Economics of Inequality, Oxford University Press, 1993. Second edition.
4. Barr, N. The economics of the Welfare State. 3rd Edition. Oxford University Press, 1998
5. Barr, N. and Whynes, D. (eds). Current issues in the Economics of Welfare. Macmillan.
1993
6. Barro R., Determinants of Economic Growth. A Cross-Countryt Empirical Study, 1997,
MIT Press.
7. Blaug M., Education Vouchers – It all Depend on What You Mean, in Privatisation and the
Welfare State, Le Grand J. and Robinson R. eds., George Allen & Unwin ltd. 1984.
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9. Boadway, R. and Marchand D., The use of public expenditures for redistributive purposes.
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297-325.
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Evidence from Peru, Journal of Public Economics, 42, 1990, pp. 251-275.
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Decisions Recognizing independence and Heterogeneous Preferences; Econometrica, 46,
pp. 403-426. 1978.
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MIT Press, 1981.
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in Peru, in: Van de Walle, D and Nead, K (eds). Public Spending and the Poor. Theory and
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ANNEX 1
ANNEX 1
XI. VARIABLES FOR THE CALCULATION OF DEMAND FUNCTIONS
FOR PRIMARY AND SECONDARY EDUCATION IN ECUADOR
VARIABLE NAME NAME IN TYPE SOURCE CONSTRUCTION METHOD NOTES
MODEL
Type of enrolment enrol* Discrete ECV 1999 pe14 (variable included in survey) 0 = not enrolled
modified to include option of non 1 = enrolled in public education
enrolment: 0 if pe01 = not enrolled 2 = enrolled in private education
Direct cost of dir_cst Continuous ECV 1999 sum of costs of tuition, fees, materials, Values per child in US$
education (monthly) transport, “voluntary” contributions and
uniforms.
Indirect(opportunity opp_cst Continuous ECV 1999 Calculated using the mean hourly wage Values per child in US$
cost) rate by age multiplied by the time spent
in school (6 hours) + the time required
to reach school for individuals between
10 and 25 years old.
Total Income of the tot_inc Continuous ECV 1999 Calculated aggregating all the income Values in US$
household (monthly) sources for every preceptor in the
household, then adding the individual
income of all the members. Auto-
consumption production is not included.
Net consumption ncaedex** Continuous ECV 1999 TOT_INC - (DIR_CST - OPP_CST) Income minus 3. and 4. Values in
after education US$.
expenditures on the
child. (monthly)
Per-capita income of pc_inc*** Continuous ECV 1999 TOT_INC / number of people in Values in US$
the household household
Gender of the child Gender*** Dummy ECV 1999 sexo: Q02 Section 2 0= Male
1=Female
Age of the child age*** Discrete ECV 1999 edadyear: Q03a Section 2 In years
School Year sch_year*** Discrete ECV 1999 If Level = 1 => pe17 0 for not enrolled
If Level = 2 => pe17+6
Index of deviation ed_dev *** Continuous ECV 1999 ((School year+6) / (Age))*100
from ideal age in
current school year
First Child dum_1st*** Dummy ECV 1999 Constructed using if functions in QPRO 1 = oldest child
0 = other
Mother with Primary moth_pri*** Dummy ECV 1999 Constructed using Qpe32-33 0 = no
Education 1 = yes
***
Mother with moth_sec Dummy ECV 1999 Constructed using Qpe32-33 0 = no
Secondary Education 1 = yes
Mother with Superior moth_uni*** Dummy ECV 1999 Constructed using Qpe32-33 0 = no
Education 1 = yes
Father with Primary fath_pri*** Dummy ECV 1999 Constructed using Qpe32-33 0 = no
Education 1 = yes
Father with fath_sec*** Dummy ECV 1999 Constructed using Qpe32-33 0 = no
Secondary Education 1 = yes
Father with Superior fath_uni*** Dummy ECV 1999 Constructed using Qpe32-33 0 = no
Education 1 = yes
***
Average age of the avg_age Number ECV 1999 Processed in SPSS: average forty age It is expected that households
members of the (years) in every household with older members will have
household less interest in children education
than younger ones
Location location*** Dummy ECV 1999 Constructed using information for 1 = Urban
identification of the household 0 = Rural
Region reg*** Dummy ECV 1999 Constructed using information for 1 = Highlands
identification of the household 0 = Coast
Households with ad_accom*** Dummy ECV 1999 Processed by SIISE. 2000 0 = Inadequate
adequate 1 = Adequate
accommodation
Overcrowded ocrw_hh*** Dummy ECV 1999 More than 3 per room of the house 0 = no
households 1 = yes
Education Supply IOE98**** Index SIISE 2.0 Official index published by Ministry of
Index Education
Last week work wrk_l_wk*** Dummy ECV 1999 Constructed using Qpa1 0 = Did work (paid)
[paid] (child >=10) 1 = Did not work (paid)
Last week work wrk_u_wk*** Dummy ECV 1999 Constructed using Qpa2 0 = Did work (unpaid)
[unpaid] (child >10) 1 = Did not work (unpaid)
A1- 33
ANNEX 1
VARIABLE NAME NAME IN TYPE SOURCE CONSTRUCTION METHOD NOTES

MODEL
Students per teacher ap_p_pub **** Continuous SIISE 2.0 Constructed for every location using
(primary public) SIISE 2.0 research database.
Students per teacher ap_p_pri**** Continuous SIISE 2.0 Constructed for every location using
(primary private) SIISE 2.0 research database.
Students per teacher ap_s_pub**** Continuous SIISE 2.0 Constructed for every location using
(secondary public) SIISE 2.0 research database.
Students per teacher ap_s_pri**** Continuous SIISE 2.0 Constructed for every location using
(secondary private) SIISE 2.0 research database.
Return for education omega***** Continuous ECV 1999 = EXP( 9.2221 + 0.009533*40 +.107 * Wage 40 : US$ /hour
estudio(+1[IF ENROLLED]) -
.285*sexo - 0.0226 *regarea) in US$
Last year of study*** Discrete ECV 1999 Constructed using Qpe32-33 In years
education approved
Household has a indep*** Dummy ECV 1999 Constructed using economic activity 0 = no
business section 1 = yes)
Household owns or farm*** Dummy ECV 1999 Constructed using economic activity 0 = no
hires a farm section 1 = yes
Notes: * Dependent variable in the model; ** Consumption in the model; *** Socio-economic characteristics utility - disutility
derived from education, **** Education quality approximation variables explaining non-observable differential in economic benefits,
and ***** OMEGA approximation of future economic benefits derived from education.
XII. DESCRIPTIVE STATISTICS: PRIMARY AND SECONDARY

EDUCATION
Descriptive Statistics
N Minimum Maximum Mean Std. Deviation
AD_ACCOM 7067 .00 1.00 .6898 .4626
AGE 7067 6 24 11.74 3.87
AVG_AGE 7067 6.88 63.75 22.7725 6.9186
DIR_CST$ 7067 .00 855.08 7.4377 18.1142
DUM_1ST 7067 .00 1.00 .2185 .4132
ED_DEV 7067 29.17 150.00 98.1428 14.8371
ENROLL 7067 .00 2.00 1.0273 .6211
ESTUDIO 7067 .00 12.00 4.7664 3.2263
FARM 7067 0 1 .36 .48
FATH_PRI 7067 .00 1.00 .4848 .4998
FATH_SEC 7067 .00 1.00 .1984 .3988
FATH_UNI 7067 .00 1.00 9.863E-02 .2982
GENDER 7067 .00 1.00 .4815 .4997
INDEP 7067 .00 1.00 .4846 .4998
IOE98 7067 26.65 67.57 42.3077 8.0231
LEVEL 7067 .00 2.00 1.3625 .5689
LOCATION 7067 .00 1.00 .5302 .4991
MOTH_PRI 7067 .00 1.00 .5028 .5000
MOTH_SEC 7067 .00 1.00 .2373 .4255
MOTH_UNI 7067 .00 1.00 8.518E-02 .2792
NCAEDEX$ 7067 .01 3776.14 188.9565 230.4968
A1- 34
ANNEX 1
OCRW_HH 7067 .00 1.00 .3338 .4716
OMEGA$ 7067 .43 2.96 1.1152 .4662
OPP_CST$ 7067 .00 17.25 5.0233 4.5945
PC_INC$ 7067 .06 874.13 34.0835 46.9452
REG 7067 .00 1.00 .5050 .5000
SCH_YEAR 5702 1.00 12.00 5.1680 3.2396
TOT_INC$ 7067 .25 3776.14 196.3941 236.8418
XII.1. Frequencies
PC_RECOD
Frequency Percent Valid Percent Cumulative Percent
30.00 4583 64.9 64.9 64.9
60.00 1612 22.8 22.8 87.7
120.00 618 8.7 8.7 96.4
240.00 190 2.7 2.7 99.1

Valid
360.00 42 .6 .6 99.7
480.00 13 .2 .2 99.9
481.00 9 .1 .1 100.0
Total 7067 100.0 100.0
Total 7067 100.0
AGE
Valid 6 607 8.6 8.6 8.6
7 582 8.2 8.2 16.8
8 632 8.9 8.9 25.8
9 587 8.3 8.3 34.1
10 585 8.3 8.3 42.4
11 525 7.4 7.4 49.8
12 640 9.1 9.1 58.8
13 496 7.0 7.0 65.9
14 511 7.2 7.2 73.1
15 421 6.0 6.0 79.0
16 473 6.7 6.7 85.7
17 432 6.1 6.1 91.8
18 399 5.6 5.6 97.5
A1- 35
ANNEX 1
AGE
19 73 1.0 1.0 98.5
20 45 .6 .6 99.2
21 19 .3 .3 99.4
22 20 .3 .3 99.7
23 13 .2 .2 99.9
24 7 .1 .1 100.0
Total 7067 100.0 100.0
Total 7067 100.0
GENDER
male 3664 51.8 51.8 51.8

Valid female 3403 48.2 48.2 100.0
Total 7067 100.0 100.0
Total 7067 100.0
ENROLL
Not enrolled 1269 18.0 18.0 18.0
Enrolled in public education 4336 61.4 61.4 79.3

Valid
Enrolled in private education 1462 20.7 20.7 100.0
Total 7067 100.0 100.0
Total 7067 100.0
LOCATION
rural area 3320 47.0 47.0 47.0

Valid urban area 3747 53.0 53.0 100.0
Total 7067 100.0 100.0
Total 7067 100.0
REG
Coast 3498 49.5 49.5 49.5

Valid Highlands 3569 50.5 50.5 100.0
Total 7067 100.0 100.0
Total 7067 100.0
A1- 36
ANNEX 1
XII.2. Crosstabs
Case Processing Summary
Cases
Valid Missing Total
N Percent N Percent N Percent
LEVEL * ENROLL 7067 100.0% 0 .0% 7067 100.0%
AGE * ENROLL Crosstabulation
ENROLL
Total
Not enrolled Enrolled in public education Enrolled in private education
AGE Count 102 347 158 607

6
% of Total 1.4% 4.9% 2.2% 8.6%
Count 33 429 120 582

7
% of Total .5% 6.1% 1.7% 8.2%
Count 37 446 149 632

8
% of Total .5% 6.3% 2.1% 8.9%
Count 42 414 131 587

9
% of Total .6% 5.9% 1.9% 8.3%
Count 27 425 133 585

10
% of Total .4% 6.0% 1.9% 8.3%
Count 20 405 100 525

11
% of Total .3% 5.7% 1.4% 7.4%
Count 102 409 129 640

12
% of Total 1.4% 5.8% 1.8% 9.1%
Count 86 325 85 496

13
% of Total 1.2% 4.6% 1.2% 7.0%
Count 128 275 108 511

14
% of Total 1.8% 3.9% 1.5% 7.2%
Count 121 218 82 421

15
% of Total 1.7% 3.1% 1.2% 6.0%
Count 176 211 86 473

16
% of Total 2.5% 3.0% 1.2% 6.7%
Count 173 187 72 432

17
% of Total 2.4% 2.6% 1.0% 6.1%
Count 222 123 54 399

18
% of Total 3.1% 1.7% .8% 5.6%
19 Count 49 24 73
A1- 37
ANNEX 1
AGE * ENROLL Crosstabulation
ENROLL
Total
% of Total .7% .3% 1.0%
Count 33 12 45
20
% of Total .5% .2% .6%
Count 12 7 19
21
% of Total .2% .1% .3%
Count 14 6 20
22
% of Total .2% .1% .3%
Count 10 3 13
23
% of Total .1% .0% .2%
Count 4 3 7
24
% of Total .1% .0% .1%
Count 1269 4336 1462 7067

Total
% of Total 18.0% 61.4% 20.7% 100.0%
GENDER * ENROLL Crosstabulation
ENROLL
Total
Enrolled in public Enrolled in private
Not enrolled
education education
Count 663 2285 716 3664
% within GENDER 18.1% 62.4% 19.5% 100.0%

male
% within ENROLL 52.2% 52.7% 49.0% 51.8%
% of Total 9.4% 32.3% 10.1% 51.8%

GENDER
Count 606 2051 746 3403
% within GENDER 17.8% 60.3% 21.9% 100.0%

female
% within ENROLL 47.8% 47.3% 51.0% 48.2%
% of Total 8.6% 29.0% 10.6% 48.2%
Count 1269 4336 1462 7067
% within GENDER 18.0% 61.4% 20.7% 100.0%

Total
% within ENROLL 100.0% 100.0% 100.0% 100.0%
% of Total 18.0% 61.4% 20.7% 100.0%
A1- 38
ANNEX 1
LOCATION * ENROLL Crosstabulation
ENROLL
Total
Not Enrolled in public Enrolled in private
enrolled education education
Count 886 2121 313 3320
% within
26.7% 63.9% 9.4% 100.0%
rural area LOCATION
% within ENROLL 69.8% 48.9% 21.4% 47.0%
% of Total 12.5% 30.0% 4.4% 47.0%

LOCATION
Count 383 2215 1149 3747
% within
urban 10.2% 59.1% 30.7% 100.0%
LOCATION
area
% within ENROLL 30.2% 51.1% 78.6% 53.0%
% of Total 5.4% 31.3% 16.3% 53.0%
Count 1269 4336 1462 7067
% within
18.0% 61.4% 20.7% 100.0%
Total LOCATION
% within ENROLL 100.0% 100.0% 100.0% 100.0%
% of Total 18.0% 61.4% 20.7% 100.0%
LOCATION * ENROLL * GENDER Crosstabulation
ENROLL
Total
Enrolled in public
GENDER Not enrolled Enrolled in private education
education
Count 464 1132 141 1737

rural area
% of Total 12.7% 30.9% 3.8% 47.4%
LOCATION
Count 199 1153 575 1927
male urban area
% of Total 5.4% 31.5% 15.7% 52.6%
Count 663 2285 716 3664

Total
% of Total 18.1% 62.4% 19.5% 100.0%
Count 422 989 172 1583

rural area
% of Total 12.4% 29.1% 5.1% 46.5%
LOCATION
Count 184 1062 574 1820
female urban area
% of Total 5.4% 31.2% 16.9% 53.5%
Count 606 2051 746 3403

Total
% of Total 17.8% 60.3% 21.9% 100.0%
A1- 39
ANNEX 1
XII.3. PC_RECOD * ENROLL Enrollment
Crosstab
ENROLL
Total
Count 953 3036 594 4583

30.00
% of Total 13.5% 43.0% 8.4% 64.9%
Count 246 949 417 1612

60.00
% of Total 3.5% 13.4% 5.9% 22.8%
Count 57 291 270 618

120.00
% of Total .8% 4.1% 3.8% 8.7%
Count 11 44 135 190

PC_RECOD 240.00
% of Total .2% .6% 1.9% 2.7%
Count 1 5 36 42
360.00
% of Total .0% .1% .5% .6%
Count 8 5 13
480.00
% of Total .1% .1% .2%
Count 1 3 5 9
481.00
% of Total .0% .0% .1% .1%
Count 1269 4336 1462 7067

Total
% of Total 18.0% 61.4% 20.7% 100.0%
Chi-Square Tests
Value df Asymp. Sig. (2-sided)
Pearson Chi-Square 817.605(a) 12 .000
Likelihood Ratio 707.162 12 .000
Linear-by-Linear Association 490.667 1 .000
N of Valid Cases 7067
a 4 cells (19.0%) have expected count less than 5. The minimum expected count is 1.62.
XII.4. Crosstabs
ENROLL * PC_RECOD * GENDER Crosstabulation
PC_RECOD
Total
GENDER 30.00 60.00 120.00 240.00 360.00 480.00 481.00
male ENROLL Count 482 143 32 5 1 663

Not enrolled
% of Total 13.2% 3.9% .9% .1% .0% 18.1%
Enrolled in public Count 1599 515 143 21 2 4 1 2285

education
% of Total 43.6% 14.1% 3.9% .6% .1% .1% .0% 62.4%
Enrolled in private Count 297 187 140 68 18 4 2 716
A1- 40
ANNEX 1
ENROLL * PC_RECOD * GENDER Crosstabulation
PC_RECOD
Total
GENDER 30.00 60.00 120.00 240.00 360.00 480.00 481.00
education % of Total 8.1% 5.1% 3.8% 1.9% .5% .1% .1% 19.5%
Count 2378 845 315 94 21 8 3 3664

Total
% of Total 64.9% 23.1% 8.6% 2.6% .6% .2% .1% 100.0%
Count 471 103 25 6 1 606

Not enrolled
% of Total 13.8% 3.0% .7% .2% .0% 17.8%
Enrolled in public Count 1437 434 148 23 3 4 2 2051

ENROLL
education
% of Total 42.2% 12.8% 4.3% .7% .1% .1% .1% 60.3%
female
Enrolled in private Count 297 230 130 67 18 1 3 746
education
% of Total 8.7% 6.8% 3.8% 2.0% .5% .0% .1% 21.9%
Count 2205 767 303 96 21 5 6 3403

Total
% of Total 64.8% 22.5% 8.9% 2.8% .6% .1% .2% 100.0%
Chi-Square Tests
GENDER Value df Asymp. Sig. (2-sided)
Pearson Chi-Square 440.126(a) 12 .000

male
Pearson Chi-Square 394.727(b) 12 .000

female
a 8 cells (38.1%) have expected count less than 5. The minimum expected count is .54.
b 8 cells (38.1%) have expected count less than 5. The minimum expected count is .89.
XIII. PRIMARY DATABASE STATISTICS

AD_ACCOM 4178 .00 1.00 .6340 .4818
AGE 4178 6 24 9.13 2.29
AP_P_PRI 4178 2.90 62.00 24.1483 14.9305
AP_P_PUB 4178 10.16 67.50 32.3812 14.0203
AVG_AGE 4178 6.88 54.00 21.0059 6.3298
DIR_CST$ 4178 .00 168.56 6.0003 12.7617
A1- 41
ANNEX 1
DUM_1ST 4178 .00 1.00 .1695 .3752
ED_DEV 4178 29.17 150.00 101.6050 14.7037
ENROLL 4178 .00 2.00 1.1312 .5202
ESTUDIO 4178 .00 12.00 2.5795 1.8603
FARM 4178 0 1 .36 .48
FATH_PRI 4178 .00 1.00 .4859 .4999
FATH_SEC 4178 .00 1.00 .1989 .3992
FATH_UNI 4178 .00 1.00 8.928E-02 .2852
GENDER 4178 .00 1.00 .4746 .4994
INDEP 4178 .00 1.00 .4591 .4984
IOE98 4178 26.65 67.57 42.1116 8.2351
LOCATION 4178 .00 1.00 .4919 .5000
MARKS 4178 50.00 100.00 83.0130 12.1284
MOTH_PRI 4178 .00 1.00 .5084 .5000
MOTH_SEC 4178 .00 1.00 .2334 .4230
MOTH_UNI 4178 .00 1.00 7.468E-02 .2629
NCAEDEX$ 4178 .01 2877.82 171.3738 214.5888
OCRW_HH 4178 .00 1.00 .3839 .4864
OMEGA$ 4178 .43 2.23 .8615 .2470
OPP_CST$ 4178 .00 14.55 1.9729 2.6263
PC_INC$ 4178 .06 752.12 30.7331 44.3368
PC_RECOD 4178 30.00 481.00 50.1924 50.7197
RA_P_PRI 4178 2.64 62.00 21.8310 6.8549
RA_P_PUB 4178 10.46 45.00 27.9105 5.1753
REG 4178 .00 1.00 .4904 .5000
SCH_YEAR 3834 1.00 6.00 3.2444 1.7121
TOT_INC$ 4178 .25 2979.94 177.3741 219.8292
WRK_AGE 4178 .00 1.00 .4236 .4942
XIV. SECONDARY DATABASE STATISTICS

AD_ACCOM 2889 .00 1.00 .7705 .4206
AGE 2889 11 24 15.51 2.24
A1- 42
ANNEX 1
AP_S_PRI 2889 3.00 19.79 10.4669 3.4401
AP_S_PUB 2889 1.50 18.69 13.2791 4.3338
AVG_AGE 2889 11.44 63.75 25.3274 6.9369
DIR_CST$ 2889 .00 855.08 9.5163 23.6633
DUM_1ST 2889 .00 1.00 .2894 .4536
ED_DEV 2889 58.33 138.46 93.1358 13.5460
ENROLL 2889 .00 2.00 .8771 .7172
ESTUDIO 2889 6.00 12.00 7.9290 1.8807
FARM 2889 0 1 .35 .48
FATH_PRI 2889 .00 1.00 .4832 .4998
FATH_SEC 2889 .00 1.00 .1976 .3983
FATH_UNI 2889 .00 1.00 .1121 .3156
GENDER 2889 .00 1.00 .4915 .5000
INDEP 2889 .00 1.00 .5216 .4996
IOE98 2889 26.65 67.57 42.5912 7.6987
LOCATION 2889 .00 1.00 .5857 .4927
MARKS 2889 50.00 100.00 74.3623 18.5224
MOTH_PRI 2889 .00 1.00 .4946 .5001
MOTH_SEC 2889 .00 1.00 .2430 .4290
MOTH_UNI 2889 .00 1.00 .1004 .3006
NCAEDEX$ 2889 .76 3776.14 214.3840 249.5871
OCRW_HH 2889 .00 1.00 .2613 .4394
OMEGA$ 2889 .82 2.96 1.4822 .4644
OPP_CST$ 2889 .00 17.25 9.4347 2.9571
PC_INC$ 2889 .18 874.13 38.9289 50.0925
RA_S_PRI 2889 4.40 32.50 15.5387 3.1976
RA_S_PUB 2889 2.00 45.06 26.9454 11.6877
REG 2889 .00 1.00 .5261 .4994
SCH_YEAR 1868 7.00 12.00 9.1162 1.6832
TOT_INC$ 2889 1.41 3776.14 223.9003 257.0408
WRK_L_WK 2889 .00 1.00 .4230 .4941
WRK_U_WK 2889 .00 1.00 .4829 .4998
A1- 43
ANNEX 1
Worked last week? (paid) * Worked last week? (unpaid) * Enrolment Cross tabulation
Count
Worked last week? (unpaid)

Total
Enrolment no yes
no 241 52 293
Worked last week? (paid)
Not enrolled yes 649 649
Total 241 701 942
no 835 100 935

Enrolled in public education yes 425 425
Total 835 525 1360
no 418 21 439
Enrolled in private education yes 148 148
Tota l 418 169 587
A1- 44
ANNEX 2
ANNEX 2: ECONOMETRIC RESULTS
XV. EARNINGS FUNCTION
EQ( 1) Modelling LNW_HOUR by OLS

The present sample is: 1 to 8937
Variable Coefficient Std.Error t-value t-prob PartRý

Constant 9.1213 0.068367 133.417 0.0000 0.6659
ESTUDIO 0.10578 0.0028722 36.829 0.0000 0.1318
EXP 0.040216 0.0030509 13.182 0.0000 0.0191
EXP2 -0.00058236 0.000057332 -10.158 0.0000 0.0114
REGAREA -0.017725 0.0023130 -7.663 0.0000 0.0065
GENDER -0.31446 0.023839 -13.191 0.0000 0.0191
R2 = 0.18337 F(5, 8931) = 401.08 [0.0000] RSS = 10793.07356 for

6 variables and 8937 observations
Testing for Heteroscedastic errors

Chi2(8) = 125.47 [0.0000] ** and F-Form(8, 8922) = 15.88 [0.0000] **
V01=ESTUDIO V02=EXP V03=EXP2 V04=REGAREA

V05=GENDER
Heteroscedasticity Coefficients:
Constant V01 V02 V03 V04 V01ý
Coeff. 2.216 -0.01125 -0.03403 0.001176 -0.1856 0.0001026
t-value 1.486 -0.4714 -2.292 2.534 -0.9275 0.08445
V03ý V04ý V05ý

Coeff. -1.636e-007 0.006363 0.1592
t-value -1.852 1.045 7.859
RSS = 69448.
RESET test for adding Yhat^2

RESET F( 1,8930) = 0.13414 [0.7142]
EQ( 2) Modelling LNW_HOUR by OLS (Strong Standard Error Matrix)

The present sample is: 1 to 8937
Variable Coefficient Std.Error t-value t-prob HCSE PartRý

Constant 9.1213 0.068367 133.417 0.0000 0.066069 0.6659
ESTUDIO 0.10578 0.0028722 36.829 0.0000 0.0028311 0.1318
EXP 0.040216 0.0030509 13.182 0.0000 0.0032078 0.0191
EXP2 -0.00058236 0.000057332 -10.158 0.0000 0.000061405 0.0114
REGAREA -0.017725 0.0023130 -7.663 0.0000 0.0022921 0.0065
GENDER -0.31446 0.023839 -13.191 0.0000 0.024826 0.0191
Wald test for linear restrictions (Subset)

LinRes F( 2,8931) = 124.64 [0.0000] **
Zero restrictions on:

REGAREA GENDER
A2- 45
ANNEX 2
XVI. MULTINOMIAL LOGIT: PRIMARY EDUCATION IN ECUADOR

+---------------------------------------------+
| Multinomial Logit Model |
| Maximum Likelihood Estimates |
| Dependent variable ENROLL |
| Weighting variable ONE |
| Number of observations 4178 |
| Iterations completed 9 |
| Log likelihood function -2084.908 |
| Restricted log likelihood -3210.633 |
| Chi-squared 2251.452 |
| Degrees of freedom 44 |
| Significance level .0000000 |
+---------------------------------------------+
+---------+--------------+----------------+--------+---------+----------+
|Variable | Coefficient | Standard Error |b/St.Er.|P[|Z|>z] | Mean of X|
+---------+--------------+----------------+--------+---------+----------+
Characteristics in numerator of Prob[Y = 1]
LN_NCAED -.6605534843 .13260528 -4.981 .0000 4.6362963
PC_INC .2923616494E-01 .74295909E-02 3.935 .0001 30.733065
GENDER 5.875970551 .39434370 14.901 .0000 .47462901
AGE 1.962683695 .19788444 9.918 .0000 9.1345141
ED_DEV_1 -2324.175627 151.82505 -15.308 .0000 .10096021E-01
DUM_1ST .3541502098 .29499261 1.201 .2299 .16945907
MOTH_PRI .2971798765 .20469528 1.452 .1466 .50837721
MOTH_SEC .8722474551 .34422012 2.534 .0113 .23336525
MOTH_UNI -.2473057142 .63386795 -.390 .6964 .74676879E-01
FATH_PRI -.5606274424 .21290359 -2.633 .0085 .48587841
FATH_SEC -.4249479481 .33179270 -1.281 .2003 .19889899
FATH_UNI -.1551546771 .61905321 -.251 .8021 .89277166E-01
AVG_AGE -.2775854946E-01 .14380313E-01 -1.930 .0536 21.005881
LOCATION -1.143023942 .25205644 -4.535 .0000 .49186213
REG 2.554050397 .23899236 10.687 .0000 .49042604
AD_ACCOM .2986521515 .18473512 1.617 .1060 .63403542
AP_P_PUB .2959897016E-01 .15617602E-01 1.895 .0581 32.381154
AP_P_PRI -.7566512237E-02 .97406233E-02 -.777 .4373 24.148308
OMEGA 27.18475297 1.7111335 15.887 .0000 .76780058
FARM -.9608707529 .21724632 -4.423 .0000 .36165629
INDEP .1982318290 .18441880 1.075 .2824 .45907133
IOE98_1 -118.7986948 32.759154 -3.626 .0003 .24789592E-01
STUDY -3.669135764 .23834644 -15.394 .0000 2.5794639
LN_NCAED -.6638302211 .14319799 -4.636 .0000 4.6362963
PC_INC .3433305886E-01 .75032258E-02 4.576 .0000 30.733065
GENDER 5.835975181 .44288178 13.177 .0000 .47462901
AGE 1.932037220 .21318781 9.063 .0000 9.1345141
ED_DEV_1 -2462.737976 166.77187 -14.767 .0000 .10096021E-01
DUM_1ST .8800707463 .30998939 2.839 .0045 .16945907
MOTH_PRI .9292088738 .26454887 3.512 .0004 .50837721
MOTH_SEC 2.044954616 .38417789 5.323 .0000 .23336525
MOTH_UNI 1.617938038 .65479785 2.471 .0135 .74676879E-01
FATH_PRI -1.042619583 .24177805 -4.312 .0000 .48587841
FATH_SEC -.6349354816 .35130120 -1.807 .0707 .19889899
FATH_UNI .4661634625 .62809780 .742 .4580 .89277166E-01
AVG_AGE -.5585150311E-02 .15822620E-01 -.353 .7241 21.005881
LOCATION -.4989608630 .27751426 -1.798 .0722 .49186213
REG 2.091023860 .27228273 7.680 .0000 .49042604
AD_ACCOM .8124362305 .21002390 3.868 .0001 .63403542
AP_P_PUB .8212725665E-01 .17716691E-01 4.636 .0000 32.381154
AP_P_PRI -.1380859302E-01 .11379456E-01 -1.213 .2250 24.148308
OMEGA 26.20530051 1.8825554 13.920 .0000 .76780058
FARM -1.453867445 .25523216 -5.696 .0000 .36165629
INDEP .1019726491 .20048948 .509 .6110 .45907133
IOE98_1 -217.6819554 38.826494 -5.607 .0000 .24789592E-01
STUDY -3.588698559 .25294753 -14.188 .0000 2.5794639
A2- 46
ANNEX 2
+-------------------------------------------+
| Partial derivatives of probabilities with |
| respect to the vector of characteristics. |
| They are computed at the means of the Xs. |
| Observations used for means are All Obs. |
| A full set is given for the entire set of |
| outcomes, ENROLL = 0 to ENROLL = 2. |
| Probabilities at the mean vector are |
| 0= .010 1= .842 2= .148 |
+-------------------------------------------+
+---------+--------------+----------------+--------+---------+----------+
+---------+--------------+----------------+--------+---------+----------+
Marginal effects on Prob[Y = 0]
LN_NCAED .6812311512E-02 .14841198E-02 4.590 .0000 4.6362963
PC_INC -.3091308155E-03 .75479836E-04 -4.096 .0000 30.733065
GENDER -.6049273242E-01 .90492383E-02 -6.685 .0000 .47462901
AGE -.2017910808E-01 .31839466E-02 -6.338 .0000 9.1345141
ED_DEV_1 24.16471436 3.5147026 6.875 .0000 .10096021E-01
DUM_1ST -.4458658846E-02 .30599137E-02 -1.457 .1451 .16945907
MOTH_PRI -.4034777898E-02 .22021782E-02 -1.832 .0669 .50837721
MOTH_SEC -.1079278059E-01 .37244283E-02 -2.898 .0038 .23336525
MOTH_UNI -.3206267547E-03 .65065770E-02 -.049 .9607 .74676879E-01
FATH_PRI .6518917437E-02 .22962131E-02 2.839 .0045 .48587841
FATH_SEC .4702274081E-02 .34220641E-02 1.374 .1694 .19889899
FATH_UNI .6431887795E-03 .63675081E-02 .101 .9195 .89277166E-01
AVG_AGE .2519548460E-03 .14902840E-03 1.691 .0909 21.005881
LOCATION .1078859406E-01 .29337879E-02 3.677 .0002 .49186213
REG -.2560827248E-01 .42610414E-02 -6.010 .0000 .49042604
AD_ACCOM -.3868059976E-02 .19728372E-02 -1.961 .0499 .63403542
AP_P_PUB -.3858310366E-03 .16792429E-03 -2.298 .0216 32.381154
AP_P_PRI .8757785607E-04 .10055225E-03 .871 .3838 24.148308
OMEGA -.2786432413 .40605539E-01 -6.862 .0000 .76780058
FARM .1066051454E-01 .26545556E-02 4.016 .0001 .36165629
INDEP -.1894788511E-02 .19082891E-02 -.993 .3207 .45907133
IOE98_1 1.376375875 .38647189 3.561 .0004 .24789592E-01
STUDY .3768819686E-01 .53455192E-02 7.050 .0000 2.5794639
LN_NCAED -.5383696082E-02 .75474917E-02 -.713 .4757 4.6362963
PC_INC -.3775056614E-03 .19654035E-03 -1.921 .0548 30.733065
GENDER .5648915966E-01 .29146878E-01 1.938 .0526 .47462901
AGE .2101818952E-01 .11951694E-01 1.759 .0786 9.1345141
ED_DEV_1 -3.145502080 10.312962 -.305 .7604 .10096021E-01
DUM_1ST -.6229589555E-01 .14612613E-01 -4.263 .0000 .16945907
MOTH_PRI -.7599046813E-01 .22073976E-01 -3.443 .0006 .50837721
MOTH_SEC -.1381847299 .23688074E-01 -5.834 .0000 .23336525
MOTH_UNI -.2341203298 .30003024E-01 -7.803 .0000 .74676879E-01
FATH_PRI .5502296737E-01 .16087223E-01 3.420 .0006 .48587841
FATH_SEC .2238739026E-01 .17804060E-01 1.257 .2086 .19889899
FATH_UNI -.7862420753E-01 .23316531E-01 -3.372 .0007 .89277166E-01
AVG_AGE -.3000733869E-02 .95691019E-03 -3.136 .0017 21.005881
LOCATION -.9011345392E-01 .16772586E-01 -5.373 .0000 .49186213
REG .7997136317E-01 .18548734E-01 4.311 .0000 .49042604
AD_ACCOM -.6127322787E-01 .14002080E-01 -4.376 .0000 .63403542
AP_P_PUB -.6272650011E-02 .11451351E-02 -5.478 .0000 32.381154
AP_P_PRI .7098964244E-03 .81093046E-03 .875 .3814 24.148308
OMEGA .3601326149 .11454793 3.144 .0017 .76780058
FARM .5288244229E-01 .18534293E-01 2.853 .0043 .36165629
INDEP .1370822777E-01 .11661072E-01 1.176 .2398 .45907133
IOE98_1 11.25508949 2.8064182 4.010 .0001 .24789592E-01
STUDY -.4217063823E-01 .13344348E-01 -3.160 .0016 2.5794639
LN_NCAED -.1428615430E-02 .74753742E-02 -.191 .8484 4.6362963
PC_INC .6866364768E-03 .18440755E-03 3.723 .0002 30.733065
GENDER .4003572758E-02 .28097175E-01 .142 .8867 .47462901
AGE -.8390814410E-03 .11605281E-01 -.072 .9424 9.1345141
A2- 47
ANNEX 2
ED_DEV_1 -21.01921228 9.7909312 -2.147 .0318 .10096021E-01
DUM_1ST .6675455440E-01 .14379237E-01 4.642 .0000 .16945907
MOTH_PRI .8002524603E-01 .22148214E-01 3.613 .0003 .50837721
MOTH_SEC .1489775105 .23552353E-01 6.325 .0000 .23336525
MOTH_UNI .2344409566 .29242979E-01 8.017 .0000 .74676879E-01
FATH_PRI -.6154188481E-01 .16033138E-01 -3.838 .0001 .48587841
FATH_SEC -.2708966434E-01 .17556576E-01 -1.543 .1228 .19889899
FATH_UNI .7798101875E-01 .22396604E-01 3.482 .0005 .89277166E-01
AVG_AGE .2748779023E-02 .95090988E-03 2.891 .0038 21.005881
LOCATION .7932485986E-01 .16618415E-01 4.773 .0000 .49186213
REG -.5436309069E-01 .18249914E-01 -2.979 .0029 .49042604
AD_ACCOM .6514128784E-01 .13955743E-01 4.668 .0000 .63403542
AP_P_PUB .6658481047E-02 .11416485E-02 5.832 .0000 32.381154
AP_P_PRI -.7974742805E-03 .81088538E-03 -.983 .3254 24.148308
OMEGA -.8148937360E-01 .10905237 -.747 .4549 .76780058
FARM -.6354295683E-01 .18477762E-01 -3.439 .0006 .36165629
INDEP -.1181343925E-01 .11566754E-01 -1.021 .3071 .45907133
IOE98_1 -12.63146537 2.8045357 -4.504 .0000 .24789592E-01
STUDY .4482441369E-02 .12422654E-01 .361 .7182 2.5794639
Frequencies of actual & predicted outcomes

Predicted outcome has maximum probability.
Predicted
------ --------------- + -----
Actual 0 1 2 | Total
------ --------------- + -----
0 188 134 5 | 327
1 34 2788 154 | 2976
2 3 537 335 | 875
------ --------------- + -----
Total 225 3459 494 | 4178
XVII. MULTINOMIAL LOGIT: SECONDARY EDUCATION IN ECUADOR

+---------------------------------------------+
| Multinomial Logit Model |
| Maximum Likelihood Estimates |
| Dependent variable ENROLL |
| Weighting variable ONE |
| Number of observations 2889 |
| Iterations completed 10 |
| Log likelihood function -1320.721 |
| Restricted log likelihood -3015.788 |
| Chi-squared 3390.134 |
| Degrees of freedom 46 |
| Significance level .0000000 |
+---------------------------------------------+
+---------+--------------+----------------+--------+---------+----------+
+---------+--------------+----------------+--------+---------+----------+
LN_NCAED -.2394577429 .15795573 -1.516 .1295 4.9362956
PC_INC -.4280437587E-02 .34967626E-02 -1.224 .2209 38.928897
GENDER 27.20534223 1.8636864 14.598 .0000 .49151956
AGE -.5899950742 .22676791 -2.602 .0093 15.507096
ED_DEV_1 -3335.769100 267.77095 -12.458 .0000 .10992391E-01
DUM_1ST -.4236875565 .27785189 -1.525 .1273 .28937349
MOTH_PRI .6716099248 .31338860 2.143 .0321 .49463482
MOTH_SEC 1.163169531 .43263375 2.689 .0072 .24299065
MOTH_UNI 1.097399158 .66929235 1.640 .1011 .10038075
FATH_PRI .3709064723 .30178848 1.229 .2191 .48321218
FATH_SEC -.9455662830E-01 .39532571 -.239 .8110 .19764624
FATH_UNI .7187919296 .65700824 1.094 .2739 .11214953
AVG_AGE .8836995659E-02 .17176984E-01 .514 .6069 25.327413
LOCATION -.7376463095 .40833072 -1.806 .0708 .58566978
REG 14.69078035 1.0131967 14.499 .0000 .52613361
A2- 48
ANNEX 2
PROVIN98 -.1501014180E-03 .10030497E-02 -.150 .8810 -74.885774
AD_ACCOM .1755343137 .27533504 .638 .5238 .77050883
AP_S_PUB -.1494209502E-01 .45431650E-01 -.329 .7422 13.279141
AP_S_PRI -.1192006947 .75938115E-01 -1.570 .1165 10.466917
OMEGA 70.31832532 4.6876078 15.001 .0000 1.3639149
FARM -.2310338248 .33687071 -.686 .4928 .34579439
INDEP -.2681973989 .24505392 -1.094 .2738 .52163378
IOE98_1 85.71378329 41.634044 2.059 .0395 .24350677E-01
STUDY -8.597115935 .57910134 -14.846 .0000 7.9290412
LN_NCAED -.3603522659 .16187127 -2.226 .0260 4.9362956
PC_INC .6430457442E-02 .30917434E-02 2.080 .0375 38.928897
GENDER 27.37675978 1.8816216 14.550 .0000 .49151956
AGE -.6236758149 .23397435 -2.666 .0077 15.507096
ED_DEV_1 -3202.516258 275.47927 -11.625 .0000 .10992391E-01
DUM_1ST -.3722549419 .28960522 -1.285 .1987 .28937349
MOTH_PRI .3075912784 .33729501 .912 .3618 .49463482
MOTH_SEC 1.295669583 .45058691 2.876 .0040 .24299065
MOTH_UNI 1.437291991 .67800310 2.120 .0340 .10038075
FATH_PRI .3666957851 .32172807 1.140 .2544 .48321218
FATH_SEC -.1203539604 .41299062 -.291 .7707 .19764624
FATH_UNI 1.290557409 .66123873 1.952 .0510 .11214953
AVG_AGE .3790977338E-01 .17843821E-01 2.125 .0336 25.327413
LOCATION -.5342325738 .43052930 -1.241 .2147 .58566978
REG 14.73024139 1.0262091 14.354 .0000 .52613361
PROVIN98 -.2493389369E-02 .10660659E-02 -2.339 .0193 -74.885774
AD_ACCOM .9930540630 .30651620 3.240 .0012 .77050883
AP_S_PUB -.2944507862E-02 .48282512E-01 -.061 .9514 13.279141
AP_S_PRI -.1890198235 .79725611E-01 -2.371 .0177 10.466917
OMEGA 70.39303035 4.7189684 14.917 .0000 1.3639149
FARM -.1792913180 .35635212 -.503 .6149 .34579439
INDEP -.1475212545 .25591113 -.576 .5643 .52163378
IOE98_1 -16.47779537 44.575294 -.370 .7116 .24350677E-01
STUDY -8.671911328 .58431329 -14.841 .0000 7.9290412
+-------------------------------------------+
| Partial derivatives of probabilities with |
| respect to the vector of characteristics. |
| They are computed at the means of the Xs. |
| Observations used for means are All Obs. |
| A full set is given for the entire set of |
| outcomes, ENROLL = 0 to ENROLL = 2. |
| Probabilities at the mean vector are |
| 0= .039 1= .699 2= .262 |
+-------------------------------------------+
+---------+--------------+----------------+--------+---------+----------+
+---------+--------------+----------------+--------+---------+----------+
LN_NCAED .1027217939E-01 .58367196E-02 1.760 .0784 4.9362956
PC_INC .5148373036E-04 .12432598E-03 .414 .6788 38.928897
GENDER -1.027807726 .14979336 -6.862 .0000 .49151956
AGE .2259738271E-01 .91393843E-02 2.473 .0134 15.507096
ED_DEV_1 124.4404468 19.426948 6.406 .0000 .10992391E-01
DUM_1ST .1545137194E-01 .10425485E-01 1.482 .1383 .28937349
MOTH_PRI -.2159289744E-01 .11871517E-01 -1.819 .0689 .49463482
MOTH_SEC -.4522905706E-01 .17299917E-01 -2.614 .0089 .24299065
MOTH_UNI -.4487752255E-01 .25133032E-01 -1.786 .0742 .10038075
FATH_PRI -.1394549308E-01 .11515596E-01 -1.211 .2259 .48321218
FATH_SEC .3831020857E-02 .14766951E-01 .259 .7953 .19764624
FATH_UNI -.3297866083E-01 .24656481E-01 -1.338 .1811 .11214953
AVG_AGE -.6317335659E-03 .64129648E-03 -.985 .3246 25.327413
LOCATION .2573214669E-01 .15605397E-01 1.649 .0992 .58566978
REG -.5544670885 .81891352E-01 -6.771 .0000 .52613361
PROVIN98 .2971610109E-04 .37448906E-04 .794 .4275 -74.885774
AD_ACCOM -.1501252036E-01 .10566571E-01 -1.421 .1554 .77050883
AP_S_PUB .4403790301E-03 .16978282E-02 .259 .7953 13.279141
AP_S_PRI .5212376485E-02 .28659694E-02 1.819 .0690 10.466917
A2- 49
ANNEX 2
OMEGA -2.652818791 .37954128 -6.990 .0000 1.3639149
FARM .8182265477E-02 .12580188E-01 .650 .5154 .34579439
INDEP .8876249104E-02 .92155917E-02 .963 .3355 .52163378
IOE98_1 -2.183642629 1.5729868 -1.388 .1651 .24350677E-01
STUDY .3250075836 .45942783E-01 7.074 .0000 7.9290412
LN_NCAED .1553295121E-01 .16680918E-01 .931 .3518 4.9362956
PC_INC -.2076015481E-02 .43300100E-03 -4.794 .0000 38.928897
GENDER .7154272401 .12734023 5.618 .0000 .49151956
AGE -.1003640929E-01 .17847472E-01 -.562 .5739 15.507096
ED_DEV_1 -115.9306892 24.193600 -4.792 .0000 .10992391E-01
DUM_1ST -.2103459760E-01 .24632647E-01 -.854 .3931 .28937349
MOTH_PRI .8499723852E-01 .37715717E-01 2.254 .0242 .49463482
MOTH_SEC .7700315588E-02 .41104882E-01 .187 .8514 .24299065
MOTH_UNI -.3202744785E-01 .49899941E-01 -.642 .5210 .10038075
FATH_PRI .1095111269E-01 .31524167E-01 .347 .7283 .48321218
FATH_SEC .2121594255E-02 .35105234E-01 .060 .9518 .19764624
FATH_UNI -.8481862629E-01 .42847001E-01 -1.980 .0478 .11214953
AVG_AGE -.5073475569E-02 .16764337E-02 -3.026 .0025 25.327413
LOCATION -.5744280218E-01 .39201287E-01 -1.465 .1428 .58566978
REG .3960381511 .73150221E-01 5.414 .0000 .52613361
PROVIN98 .4243571561E-03 .99685794E-04 4.257 .0000 -74.885774
AD_ACCOM -.1446676632 .32193423E-01 -4.494 .0000 .77050883
AP_S_PUB -.2603947612E-02 .45263567E-02 -.575 .5651 13.279141
AP_S_PRI .9494648324E-02 .66979889E-02 1.418 .1563 10.466917
OMEGA 1.916538748 .30924856 6.197 .0000 1.3639149
FARM -.1580302490E-01 .33227289E-01 -.476 .6344 .34579439
INDEP -.2942787037E-01 .22219840E-01 -1.324 .1854 .52163378
IOE98_1 21.03883768 4.4949634 4.681 .0000 .24350677E-01
STUDY -.2223094691 .39445812E-01 -5.636 .0000 7.9290412
LN_NCAED -.2580513059E-01 .15797631E-01 -1.633 .1024 4.9362956
PC_INC .2024531750E-02 .38610484E-03 5.243 .0000 38.928897
GENDER .3123804858 .76852011E-01 4.065 .0000 .49151956
AGE -.1256097343E-01 .16734942E-01 -.751 .4529 15.507096
ED_DEV_1 -8.509757584 20.086441 -.424 .6718 .10992391E-01
DUM_1ST .5583225657E-02 .23575243E-01 .237 .8128 .28937349
MOTH_PRI -.6340434108E-01 .36730312E-01 -1.726 .0843 .49463482
MOTH_SEC .3752874148E-01 .39018769E-01 .962 .3361 .24299065
MOTH_UNI .7690497039E-01 .45712842E-01 1.682 .0925 .10038075
FATH_PRI .2994380388E-02 .30641014E-01 .098 .9222 .48321218
FATH_SEC -.5952615112E-02 .33684799E-01 -.177 .8597 .19764624
FATH_UNI .1177972871 .38280242E-01 3.077 .0021 .11214953
AVG_AGE .5705209135E-02 .15965053E-02 3.574 .0004 25.327413
LOCATION .3171065549E-01 .37848417E-01 .838 .4021 .58566978
REG .1584289374 .47771423E-01 3.316 .0009 .52613361
PROVIN98 -.4540732572E-03 .97132229E-04 -4.675 .0000 -74.885774
AD_ACCOM .1596801836 .31837919E-01 5.015 .0000 .77050883
AP_S_PUB .2163568582E-02 .43996082E-02 .492 .6229 13.279141
AP_S_PRI -.1470702481E-01 .64612083E-02 -2.276 .0228 10.466917
OMEGA .7362800436 .17201864 4.280 .0000 1.3639149
FARM .7620759423E-02 .32196159E-01 .237 .8129 .34579439
INDEP .2055162127E-01 .21308115E-01 .964 .3348 .52163378
IOE98_1 -18.85519505 4.3814686 -4.303 .0000 .24350677E-01
STUDY -.1026981145 .23971404E-01 -4.284 .0000 7.9290412
Frequencies of actual & predicted outcomes

Predicted outcome has maximum probability.
Predicted
------ --------------- + -----
Actual 0 1 2 | Total
------ --------------- + -----
0 900 41 1 | 942
1 14 1273 73 | 1360
2 11 405 171 | 587
------ --------------- + -----
Total 925 1719 245 | 2889
A2- 50

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ECUADOR: DEMAND FUNCTIONS FOR PRIMARY AND

DRAFT for Comments

Pablo Salazar Canelos

pablosalazar@porta.net Pablo Salazar Canelos ii

pablosalazar@porta.net Pablo Salazar Canelos 1

pablosalazar@porta.net Pablo Salazar Canelos 2

II. THEORETICAL FRAMEWORK

II.1. The nature of education

Education is a special good, because it could be considered as a consumption but also as an

Following Barr (1998) setup:

E i = E ( Pi , U i ) (1) , where: E i = Education of the i th individual, Pi = Production of the i th

II.2. The Public Provision of Education

II.3. Education and Inequality

III. SOME EMPIRICAL APPLICATIONS IN DEVELOPING COUNTRIES

IV. THE EDUCATION SECTOR IN ECUADOR

pablosalazar@porta.net Pablo Salazar Canelos 7

Public Expenditure on Education of a Sample of Latin American Countries 1994-1996

0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0%

- 10.0 20.0 30.0 40.0 50.0 60.0 70.0 80.0 90.0

US$ / per capita

pablosalazar@porta.net Pablo Salazar Canelos 8

Expenditure / Student in a Sample of Latin American Countries by Education Level

Ecuador: Structure of the Population

0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0%

pablosalazar@porta.net Pablo Salazar Canelos 9

Average Years of Schooling in a Sample of Latin American Countries

Despite the international comparisons are interesting in terms of establishing a reference

The key results of the analysed survey are the following:

V. ECONOMIC MODEL AND ECONOMETRIC SPECIFICATION

The utility of not enrolling the child is defined in (4).

s.t.: C 0i = Y0i = (∑ n−1

Tn = Lpn + Lun (6)

So, the budget constraint could be rewritten as equation 7.

E 0i = E ( z i , Qk , Ω 0 ) (8), where z i = Socio-economic and demographic characteristics of

So, the utility function of non-enrolment could be rewritten as follows:

The budget constraint:

s.t.: C ki = Yki − pek * E k ≡ Y0i − pek * E k − wn * (t nk ) (11), where: Yi k = Income if the

pablosalazar@porta.net Pablo Salazar Canelos 13

So, the utility function (10) could be rewritten as follows:

U 0i > U 1i and U 0i > U 2i (15)

V.2. The Econometric Specification

π 0i = pr (ε 1i < U 0 − U 1 + ε 0i and ε 2i < U 0 − U 2 + ε 0i ) (19)

of alternatives m and m´ for the representative (average) household and F0 = ∂F ∂k mi .

π 0i = pr (ε1i − ε 0i < U 0 − U 1 and ε 2i − ε 0i < U 0 − U 2 ) = pr (η1i ⊕0 < U 0 ⊕1 and η2i ⊕0 < U 0 ⊕ 2 )

TABLE 3: VARIABLES FOR THE CALCULATION OF DEMAND FUNCTIONS FOR

Recall 15 and include the decision variable ENROLL,

pablosalazar@porta.net Pablo Salazar Canelos 17

and that for secondary education:

V.3. Estimating Expected Returns to an Additional Year of Education

ln w i = β 0 + β 1 * estudioi + β 2 * EXPi + β 3 * EXP 2 i

R2 = 0.18 F (5,8931) = 401.08 0.0000

VI. THE DATA

TABLE 5: CRITERIA FOR CASE SELECTION

VI.1. The General Context

VI.3. Socio-economic characteristics

TABLE 6: DESCRIPTIVE STATISTICS PER ENROLMENT CONDITION

pablosalazar@porta.net Pablo Salazar Canelos 21

VI.4. Gender and area

pablosalazar@porta.net Pablo Salazar Canelos 22

TABLE 7: ENROLMENT CONDITION PER EDUCATION OF THE MOTHER AND

None to basic 305 515 36 856

None to basic 91 227 61 379

VI.6. The cost and quality of education