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Policies to Develop Human Resources

Written by: OECD Development Centre

Article Overview: Now that the importance of human capital in attracting FDI is understood, the next question is: what are the past HRD policy experiences of host developing countries that have strived to attract inward FDI? This section focuses on formal education policies to attract FDI. While vocational training policies also help improve human resources of host developing countries, they are likely to be more important after some influx of FDI into the economy.

Policies to Develop Human Resources

Now that the importance of human capital in attracting FDI is understood, the next
question is: what are the past HRD policy experiences of host developing countries that
have strived to attract inward FDI? This section focuses on formal education policies to
attract FDI. While vocational training policies also help improve human resources of host
developing countries, they are likely to be more important after some influx of FDI into
the economy.
Policy Experiences to Improve Basic Education
Basic education is the starting point of a HRD policy. Without wide access to
quality basic education, host countries not only face difficulties in attracting low valueadded
MNEs, but also lose opportunities to move-up the value chain by upgrading
worker skills. Experiences in host developing countries that have invested in basic
education appear to have led to a large influx of FDI. The following evaluates policies
that have mobilised such efforts.

Perhaps the most celebrated policy initiative to expand basic schooling is
Education for All, a collaborative action by international donors, governments and NGOs
to improve education20. This initiative called upon all stakeholders to plan and initiate
measures to improve numerous aspects of educational constraints faced by developing
countries. They include lack of access to and quality of basic education and high adult
literacy. Although many participating countries made large efforts to attain target goals
set during the conference21, many of the these goals have not been achieved, with
regions such as Central Asia and sub-Saharan Africa still facing low primary school
enrolment rates and adult literacy rates. Gender gaps also remain quite large in these
regions.
While the above initiative had a strong impact on increasing donors’ official
development assistance (ODA) for basic education, it also stimulated developing
countries’ own efforts to improve basic schooling. Mexico is a good case example where
compulsory education was increased from primary to the end of basic schooling in 1993.
This effort by the government as well as inputs from donors led to a substantial
improvement in access and quality of basic schooling, with enrolments increasing 7-fold
while total population tripled, and adult illiteracy decreased from 40 to 12 per cent. The
government has also implemented a comprehensive reform of the education sector over
the last five years with an emphasis on improving literacy and numeracy levels of the
population. As a consequence, the average educational attainment among the
population aged 15-64 has indeed increased from 5.9 years in 1980 to 7.95 years in
2000 (Cohen and Soto, 2000). Brazil is another country that has mobilised the Education
for All initiative to reform the education system. The reform was undertaken in a direct
manner via integrating the Education for All initiatives into the government’s education
policies. This has led to an improvement in access and quality as well as the
management and financing. Net primary enrolment at the 1st-4th grade has increased
from 86 (1990) to 97 per cent (1999), while that of 5th-8th grade increased from 40
(1990) to 62 per cent (1999).
A number of countries have made efforts to increase access and quality of basic
education before the Education for All initiative. With the collaboration of the World Bank,
Indonesia achieved an unprecedented increase in the number of primary schools of
61 000 between 1973 and 1978, which was later shown to have a large impact on school
participation and wage gains (Duflo, 2001). The Indonesian government, with substantial
financial assistance from donors including the World Bank, later implemented a
scholarship scheme under the Back to School Programme, which allowed further
improvement in the access to basic education. Several countries have made attempts to
increase the quality of basic education as well as the access. They include Singapore,
Indonesia, El Salvador, Haiti and Costa Rica. During the import-substitution phase back
in the 1960s, Singapore initiated a scheme called Standardized Education System to
streamline necessary types of skills in maths, science and English, to be covered in
basic schooling. Indonesia, under the Back to School Programme, promoted improved
efficiency in learning and service delivery by providing large lump-sum cash subsidies
directly to schools and communities. This is a part of the community-participation
scheme22 which became a well-known model for developing countries to gain efficiency
and quality in basic schooling. Other countries that followed the community-participation
scheme include El Salvador, which emphasised the role of school-based management,and Haiti, which involved NGOs and a religious organisation. Recent developments in
improving quality in delivering basic education are the use of technology in schools
(World Bank, 1999). Costa Rica has been a front runner in the introduction of computers
in classrooms to improve learning efficiency and to prepare students for the knowledgeeconomy.
The Educational Computing Programme and Community Computing
Programme started in the late 1980s have already supplied over 10 per cent of all public
primary schools in Costa Rica. It has been found that these initiatives had an enormous
impact in spreading pre-internet digital culture in the communities (Monge and
Cespedes, 2002).
In general, most of the above-mentioned policy experiences have indicated
positive impact on quantity and quality expansion of basic schooling. However, care must
be taken in applying these experiences to other countries each facing a unique set of
constraints. For example, programmes to mobilise information and technology in schools
are increasingly popular in developing countries. While computers may potentially be an
efficient tool to facilitate learning and to equip students with technological skills, many
developing countries simply do not have stable infrastructure nor educational budgets to
keep up with the recurrent cost of such investment. For these countries, other means to
improve quality of schooling may well be more effective.

Policy Experiences to Improve Post-Basic Education
There have also been numerous individual country and inter-governmental efforts
to expand upper-secondary and tertiary education. Ireland and Korea are among the
countries that have achieved increased access through policy change. To increase
enrolments at upper-secondary and tertiary education, Ireland changed educational
financing policies to reduce the tuition burden of students. The secondary education fee
was abolished in 1967, followed by an introduction of free tertiary education. Korea, while
already enjoying a relatively high tertiary school enrolment rate, faced problems in
allocating students to subject areas that reflect industry demands (UNCTAD, 1994). In
particular, it was difficult to expand students in fields of technology. After identifying that
lack of qualification and recognition in these fields led to low enrolments of students in
these fields, the government decided to redesign a technical qualification system that
allowed graduates who studied these subjects to have the same status as other
professionals.
Several countries have also tried numerous policy initiatives to improve the quality
of tertiary education. They include Singapore, Ireland and Africa.
Singapore’s Investment Promotion Agency (IPA): the Economic Development Board
(EDB) has recently made an attempt to shape the Singaporean education system which
is highly responsive to industry demands. This effort began in 1997 with the World Class
Universities Programme, with an aim to set up ten world educational institutions in
Singapore to deliver quality courses on demand-driven subjects. Singapore already has
eight American and European schools that have strong links to industries. The amount of
education and R&D delivered through these schools is expected to meet the skills needs
of the industries.

Ireland’s IPA: the Irish Development Authority (IDA) also has a role in shaping
educational policy in synchronisation with industry demands. In 1997, for example, the
Experts Group on Future Skills Needs was formed to identify skills needs of sectors and
recommend action for HRD. Furthermore, the Irish IPA led a strategy called Education,
Skills and Research, which includes research programmes in tertiary education to
promote R&D and innovation capacity of the economy.
In spite of the over-mounting problems to expand basic education, a number of countries
in Africa, with the assistance of the World Bank, have initiated African Virtual University
to overcome supply and quality constraints in tertiary schooling. This initiative, begun in
1997 with 17 African countries participating, has already produced 24 000 graduates in
the field of technology, engineering and business. The main idea of this initiative is to
provide demand-driven tertiary education of high quality in areas where either
infrastructures or the type/quality of courses are non-existent. However, to the extent that
many of the graduates of these courses may go outside Africa, the true impact of the
African Virtual University, on upgrading skills in Africa is unclear. However, experience in
Singapore provides a good example for countries that aim to attract high value-added FDI.
Policy Initiatives in the EU-zone: The Minimum Learning Platform
Attempts have been made in a number of EU member countries to set a so called
“minimum learning platform” which defines areas of knowledge and competence that are
necessary in the forthcoming labour market. They take into account the new skill
requirements such as communication skills, understanding ICT, ability to learn
independently and further personal and social skills (McIntosh and Steedman, 1999).
Furthermore, the “minimum learning platform” is expected to include not only skills that
increase employability, but also skills that relate to all aspects of human conditions, such
as personal and social skills (McIntosh and Steedman, 1999). The concept of minimum
learning platform contains an important message that the minimal skills necessary to
meet the future labour market demand is increasingly moving towards higher technology
areas as well as personal developments.
Policy Conclusion
Past trends in inward FDI and policy experiences lead to two policy conclusions.
First, HRD policies should at the minimum, address access-to and quality-improvement
of basic education. Without a sound basic education policy, the education system will
constantly feed under-skilled workers into the labour market, which gives a bad signal for
potential MNEs seeking location advantages. While basic education is important in itself
to upgrade human capital, it also provides means for further increasing human capital by
opening options for tertiary education, which has become increasingly demanded by
high-value added MNEs. Even for countries that intend to attract primary and resourcebased
manufacturing FDI, basic education is important since it has a long-lasting effect
on other key investment climates such as socio-political stability, health and civil liberty.
However, effective ways to rapidly improve basic education is unclear from past host
country experiences. It should depend on specific educational constraints faced by each
country.

Second, HRD policies must be demand-driven. Past experiences indicate that
participation by industries and foreign academic institutions that have close ties with
high-technology industries can be effective. Moreover, experiences in Singapore and
Ireland show that IPA-driven educational policies allow demand sensitive HRD policy
reforms. To the extent that not all IPAs have authorities to have an impact on education
policy making, IPAs should collaborate closely with the Ministry of Education.

OECD DEVELOPMENT CENTRE
Working Paper No. 211
HUMAN CAPITAL FORMATION
AND FOREIGN DIRECT INVESTMENT
IN DEVELOPING COUNTRIES
by
Koji Miyamoto

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Article Tags: adult literacy, case example, central asia, collaborative action, compulsory education, development assistance, economy policy, education policies, fdi, formal education, gender gaps, host countries, international donors, literacy rates, mnes, policy initiative, quality basic education, school enrolment, sub saharan africa, target goals



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