NOTES

High Returns from

Higher Education
Effect on Agricultural Income
Kshitij Awasthi, Kiran K Bhat

Education has been a key

government policy to drive
economic empowerment in rural
India. However, evidence on
returns to education has been
mixed. Research has measured
education as school enrolments
while overlooking completed
education. There has been
hardly any attempt to see beyond
schooling to look at returns to
higher education. Here, we test
returns to higher education in
rural areas, correlating it with
agricultural productivity. The
results show a steep rise in
returns to higher education after
the higher secondary level. The
corresponding policy implications
are also discussed.

Kshitij Awasthi (kshitij.awasthi@iimb.ernet.in)

is a doctoral student at Corporate Strategy and
Policy Area, Indian Institute of Management
Bangalore. Kiran K Bhat (kiran.k@iimb.
ernet.in) is a doctoral student, Production
and Operations Management Area, IIM-B,
Bengaluru.

76

ducation is one of the top areas of

focus for societal upliftment in
most developing economies. In
India, policies have been in force for the
promotion of primary education (and
secondary also in some states) through
various schemes like Sarva Shiksha
Abhiyan and Mid-day Meal. In rural areas,
promoting basic education is expected to
lead to better quality of life and economic
empowerment. Similarly, for higher levels
of education, there should be, arguably,
even higher benefits. For a farmer, this
relation between education and economic
development should reflect in improved
agricultural productivity. In this article
we measure the returns on higher education through agricultural productivity
and our results suggest superior returns
from higher education in terms of agricultural productivity.
Literature Review
The first question about education as
a policy iswhy i s it important? Education enhances ones ability to receive,
decode, and understand information
(Nelson and Phelps 1966: 69) and is
therefore required for improving work
efficiency. The governments objective
is to promote education usually as an
investment good. However, according to
Welch (1970), education should also be
counted as a production factor not just
as public investment (Welch 1970: 35).
Elaborating further on benefits of this
production, he posited that it can add
productive value in two broad ways
worker effect and allocative effect.
The worker effect refers to the phenomenon where increased education simply
may permit a worker to accomplish
more with the resources at hand
(Welch 1970: 42). While the allocative

effect refers to a phenomenon where

increased education may enhance a
workers ability to acquire and decode
information about costs and productive
characteristics of other inputs (Welch
1970: 42). Discussing the relevance of
worker and allocative effects, Reimers
and Klasen (2011) argue that farmers
education enhances production efficiency
primarily due to the latter (Reimers and
Klasen 2011: 4). In the present article,
we argue that the mix of allocative
effect and worker effect will be skewed
more towards worker effect but as soon
as years of schooling increases, the
worker effect will remain constant but
the allocative effect will keep on increasing. In a nutshell, we propose and
test that the agricultural productivity
with higher education will be significantly higher than the agricultural productivity with primary schooling. Primary education is precisely the area
where public policies and even the academic literature has to focus. Through
our empirical testing, we attempt to
make a case for looking beyond primary
education and focusing on higher education in rural areas.
Data and Analysis
We use t h e 2005 India Human Development Survey (IHDS) data for our
analysis. The univariate data analysis
indicates that college education (graduation) significantly changes the choice
of occupation in rural areas and the convergence towards salaried work.1 Looking more closely, among those who completed Class 12th level of education, the
percentage of males and females in the
salaried workforce is 36% and 34%
respectively. Among those with a graduate/diploma certificate, this percentage
increases to 60% and 70% respectively.
It can be safely assumed that after completing graduation most people tend to
move towards urban areas to find a job.
However, what happens if such educated
individuals were to stay in rural India?
Further, the median agricultural income
of a 12th educated person is Rs 12,027
per month, which increases to Rs 17,197
for a graduate/diploma holder, an increase

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vol lI no 7

EPW

Economic & Political Weekly

NOTES

Median Agricultural Income

Figure 1: Agricultural Income Median vis--vis Education

20,000
16,000

(Agricultural Income)

230% respectively) over the other two

categories. The overall models were
found to be significant.
Discussion and Implications

12,000

Table 1 presents the summary statistics

of the variables. The average annual farm
income was Rs 13,418.11. We observe
that individuals with 10th, 10+2, and
graduate education are about 89%, 6%
and 5% respectively, and the literacy
rate was about 64%. In the regression
Model 1, we consider the years of
education and observe that it was found

The extant literature indicates that

spread of literacy and education in the
farm labour force makes a modest but
sustained contribution to agricultural
1011 std
12 std/some college Graduate/diploma
productivity growth (Fuglie 2010; Adams and Bumb 1979; Lio and Liu 2006;
to be highly significant (Table 2). Literacy Fuglie and Schimmelpfennig 2010). It
had a negative impact as more educated can be argued that the more a rural inwere moving towards other occupations dividual is educated, the better choice
(-25.39) and hence the farm income was she can make in terms of crops selecobserved to be affected by education tion, sowing season, preventive action,
of individuals.
and best methods in practice. Reimers
In Models 2, 3, and 4 (Table 2) we con- and Klasen (2013), while discussing the
sidered the number of years of education role of education in agricultural producless than 10th, 11th12th, and greater tivity, mention farmers becoming manthan 12th. The coefficients of education agers by developing decision-making
for Models 2, 3 and 4 are 258.5, 536.6, skills (Asadullah and Rahman 2009).
and 1,775.5 respectively. This shows These decision-making skills, along with
that graduates undertaking agricultural better information coming with higher
activities have a significant increase in education, can allow farmers to assess
agriculture income (almost 586% and risk and returns associated with production technology (Asadullah
Table 1: Variable Descriptive Statistics
and Rahman 2009) and opt
Mean
Standard
Count
Deviation
for the one that best suits
Farm income (Rs/year)
13,418.11
59,161.65 2,15,754
their requirement. The proAge (years)
27.34
19.34 2,15,754
ductivity improvement leads
Occupation
66.76
23.53
48,477
to higher farm income.
Literacy (%)
0.64
0.48 2,14,797
However, for this to mateEducation years (years)
4.67
4.68 2,14,399
rialise a basic level of eduEducation years <=10 (dummy)
3.55
3.69 1,89,524
cation is mandatory, as it
Education years 1112 (dummy)
11.73
0.44
12,987
Education years >12 (dummy)
14.80
0.53
11,888 is indicated by univariate
data discussed previously.
Table 2: OLS Regression Results of Education on Farm Income
This level can be equiva1
2
3
4
lent to a higher secondary
Farm Income
Farm Income Farm Income Farm Income
(12th) education in the
Education years
205.6***
Indian context.
(5.14)
There are several benefits
Education years <=10
258.5***
(5.00)
of promoting higher eduEducation years 1112
536.6
cation in India. The first is
(0.50)
the strategic nature of
Education years >12
1,775.5
(0.86) agriculture that makes it
Age
-16.55
-8.365
-70.67
-98.03 imperative to work in this
(-1.88)
(-1.04)
(-1.73)
(-1.43) direction. Agriculture serves
(-4.85)
(-5.07)
(-0.26)
(-1.87)
our basic need for food,
Literacy
-338.0
-611.4
-1,685.5
11,792.7
(-0.86)
(-1.52)
(-0.19)
(0.52) and India has 1.2 billion
District Id
-9.961
-16.98*
9.979
65.53 people to feed, and it is
(-1.08)
(-1.98)
(0.27)
(1.02) indeed important to focus
_cons
6,721.6*** 6,644.2*** 4,404.7
-26,001.6 on increasing agricultural
(11.39)
(11.83)
(0.28)
(-0.68)
productivity. In other words,
N
48,259
41,016
3,062
4,181
there is a need to address
t statistics in parentheses.
food security concerns.
* p < 0.05, ** p < 0.01, *** p < 0.001.

Economic & Political Weekly

vol lI no 7

8,000
4,000
0
None
Source: IHDS (2010).

14 std

59 std

of almost 43% (IHDS 2010).2 This implies

that returns to rural education for those
who chose to involve themselves in rural
activities after graduation increases
significantly (Figure 1).
We argue that individuals with higher education can bring efficiency in
rural activities (in particular agriculture), by virtue of their higher skills, exposure to better practices and ability to
understand and appreciate the role of
technology. This corresponds to the
allocative effect (Welch 1970) discussed earlier. While univariate analysis of
median agricultural income suggests an
interesting phenomenon, we further investigate this in a multivariate setting to
understand if such a phenomenon, in
fact, exists after accounting for important sources of bias.
Multivariate Analysis
We use farm income as the dependent
variable while education (number of
education years) as our key explanatory
variable. The age of the individual and
occupation were taken as control variables
as they might significantly impact the
yield/productivity of farms (Mohapatra
2011; Pudasaini 1983; Moock 1981;
Llewellyn 2011; Jamison and Moock 1984;
Cotlear 1986; Chaparro and Allee 1960).
We run an ordinary least squares (OLS)
regression using IHDS 200405 data.
Results

EPW

febrUARY 13, 2016

77

NOTES

Further, though the contribution of agriculture in gross domestic product (GDP)

is relatively low, the employment provided is much higher than other sectors. It
is pertinent to note here that it employs
the relatively lower strata of society, so
it is in a position to aid in the overall
development of the country. Higher
education in rural areas has to play a
major role in that direction.
A second set of benefits arises from the
better implementation and utilisation of
all the central and state government
schemes. A farmer with higher education will be better placed to understand
and gain from policies like credit facilities, use of modern knowledge available
about agricultural technology, meteorology, etc. Benefits of advanced information and communication technology can
be utilised by these individuals. They
will be in a better position to tackle the
supply-chain hazards like profiteering
by middlemen, lack of storage, difference between logistics requirement of
different crops. They could use agriculture insurance and hedge themselves
against adversities. They could also access markets relatively easily given their
superior exposure to the outside world.
These highly educated individuals could
unite to have aggregate farming and
achieve economies of scale. Further, on
the behavioural front, they will be more
likely to change conventional but obsolete methodologies that continue to be
employed in the agriculture sector.
Finally, as agriculture becomes more
productive and provides returns, more
and more educated youth who opt for
alternative employment outside agriculuture might want to choose farming.
We have the example of the Western
world, particularly the United States,
where many educated youth take up
farming. Back home, we have Punjab as
a case in point.
Conclusions
We attempted, in this article, to demonstrate the improvements a farmer with
higher education can bring to agricultural
productivity. From the above analysis, it
is clear that policy intervention is needed
to develop high-skilled (graduate/diploma
holder) rural youth, and utilise their
78

skills in increasing agriculture and allied

activities productivity. In India almost
18% of the GDP comes from agriculture,3
and it is the slowest growing sector, far
behind services and manufacturing in
terms of growth rates. One of the major
reasons that can be attributed to this issue is the lack of better technology,
know-how about crops, inefficient use of
government policies like farm subsidies,
lack of access to markets, and other key
information. All of these issues can be
addressed to a substantial extent if
higher education is promoted.
Notes
1
2
3

IHDS (2010, Table A.4.3a: p 53).

IHDS (2010, Table A.3.1a: p 37).
Indian Agriculture Industry: An Overview,
http://www.ibef.org/industry/agriculture-india.aspx, viewed on 26 December 2014.

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The Impact of Inputs, Technology and Context
on Land Productivity, Economic Development
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Asadullah, M Niaz and Sanzidur Rahman (2009):
Farm Productivity and Efficiency in Rural
Bangladesh: The Role of Education Revisited,
Applied Economics, Vol 41, No 1, pp 1733.
Chaparro, Alvarro and Ralph H Allee (1960): Higher
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Cotlear, Daniel (1986): Farmer Education and
Farm Efficiency in Peru: The Role of Schooling,
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Fuglie, Keith O (2010): Sources of Growth in
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Fuglie, Keith and David Schimmelpfennig (2010):

Introduction to the Special Issue on Agricultural Productivity Growth: A Closer Look at
Large, Developing Countries, Journal of Productivity Analysis, Vol 33, No 3, pp 16972.
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Llewellyn, David (2011): Higher Level Skills for
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Review of Urban Affairs

January 30, 2016
Reflecting on the Share Economy and Urbanising Capital
Biju Mathew
The New Love Story of the Taj Mahal:
Sheela Prasad,
Urban Planning in the Age of Heritage Tourism in Agra
Kapil Kumar Gavsker
Public Social Rental Housing in India: Opportunities and Challenges
Swastik Harish
Politics, Information Technology and Informal Infrastructures
in Urban Governance
Matt Birkinshaw
Urban Voting and Party Choices in Delhi:
Bhanu Joshi, Kanhu Charan Pradhan,
Matching Electoral Data with Property Category
Pranav Sidhwan

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