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It is often said that the main asset of the poor is labor and that anti-poverty

projects should always include a component that improves the quality of

labor. Among the poor, the highest educational attainment of the household

head is only Grade 5 on average.13 In the regression model, the impact of

education is only signifi cant when interacted with roads. This latter proxies

access to technology and access to markets. In effect, the model implies that

the positive benefi ts of education will be realized only if there is access to

technology (so that skills can be honed) and access to markets (to encourage

skilled labor to produce marketable surplus).

In the simulation every head of household undergoes an additional

two years of education. This results in more than 9 years of schooling

on average. The cost of the education package includes the operating

cost for public school facilities, as well as the out-of-pocket expenses of

households.14 We assume that the stream of benefi ts will be for 16 years,

roughly equal to the difference between retirement age (65 years) and the

average age of household heads (47 years) adjusted for the duration of

project implementation (2 years).

Allowing for the mean value of road expenditure the total benefi t of the

simulated education project is more than Pesos 50 billion per year. Of this

the benefi t to the poor equals Pesos 2.4 billion, giving a leakage rate of 95

per cent. Poverty incidence goes down by 1.35 percentage points as a result

of the education package. The benefi t–cost ratio is 0.96, but if out-of-pocket

expenses are not considered, the ratio increases to 3.92.