Purpose – to evaluate the effectiveness of education financing from different sources and different methods. This article aims to evaluate the effectiveness of higher education financing by different methods in Kazakhstan. Such methods as grants allocated through Commission by the results of United National Test, Voucher system and Educational Loans. The education concept is widely used in the labor economics and these issues are considered by human capital and economic development. In recent decade more and more Kazakhstani enrollees strive to go to the foreign universities, because the local Universities and colleges have the low quality and conditions. Most employers do not even consider the graduates of local universities unless exceptional skills. However, those high-school graduates that get grants and scholarships and those who enter on a paid basis should receive the competitive education for further employment.
Methodology – based on neoclassical growth theory, uses deductive approach through conducting semistructured interview. There were considered many official reports by World Bank, OECD countries and Reports of Ministry of Education and Science (MOES) of The Republic of Kazakhstan. On the basis of “Constructing Knowledge Societies: New Challenges for Tertiary Education” Report that summarizes that tertiary education as an “important in building capacity and reducing poverty”. Their studies have a great influence on the attractiveness of foreign investments into developing countries.First of all, people should understand that tertiary education also includes training courses for teachers, doctors, engineers, scientists and others. The Report of World Bank also highlights that a huge part in Tertiary education system plays colleges, community colleges, research laboratories, distance learning centers and all of them that has a relation to the development and prosperity of individuals and as a consequence the developments of the country.
Originality / value – Improve Higher education quality through highlighting theImportance of financing
Findings – the majority of the respondents supported the idea of volunteer financing from organizations and providing loans from banks with low interest rate
The topic of this article has a great concern for the future of the country. It was deliberately well-known that quality education increases human capital accumulation. In this order, human capital is a component of GDP. That is why government is concerned to create high qualitative staff. It is worth to admit here, what is meant by Human Capital, how many years of education and degree should labor have in order to accumulate productivity. So, for workers that represented by minimum education (received during years 5-16) and human capital proficiency acquired in post 16 training where HEIs makes a profound contribution(Report,University of Leeds).
Tertiary education which includes universities as well as institutions that teach specific capacities of higher learning such as colleges, technical training institutes, community colleges, nursing schools, research laboratories, centers of excellence, and distance learning centers (Salmi,J. and Hauptman, A. (2006)). The State Program of Education Development for the period of 2011-2020 is in charge of implementing the state policy in the field of education (EACEA report, 2013a). The government annually allocates budgetary funds for education in respect of its priorities along with various budget programs (approximately 11) within the overall budget. State expenditure per student in higher education (HEI) is annually increasing.
At present, 20 % of the enrollees receive state grants. Thus, the share of private fees is rather high and makes up around 80 % in the overall budget of HEIs (National statistics committee, 2015).
There are many research works aimed to investigate the importance of education financing and factors that positively influence on human capital. However, academics have noticed that this question should be enlightened in the context of Kazakhstani demand in high professionals. In a Report of World bank researchers strives to compare allocation mechanisms that best suit to distribution of public money for the development of human capital. They also raised the question on the lack of tertiary financing by different sectors. The reason behind this demand comes from increasing returns accruing from tertiary education that is higher than from the secondary education or less.
So, what researchers did is that they delivered concrete steps on the way to implement the best possible strategy.
As an example, they offered to increase the overall participation rate for students of enrollment age in the year after their graduation from the secondary school.
The strong side of aforementioned research was a great scope of investigating number of different approaches.
There was another research, “Voucher for higher education?” that explained the changes of educational system throughout the world due to the development of information and communication technology (ICT) (Jongbloed, Koelman, 2000a).
According to the research conducted they have identified four different parameters of resource allocation mechanisms for higher education. (Jongbloed, Koelman, 2000b).
- Planned, input-based funding through providers
- demand-driven, input-based funding through clients
- performance-based funding of providers
- purpose-specific purchasing from
First of all it is necessary to find theoretical background to address this issue for better understanding.
In the literature, tertiary education appeared during the 1973. Higher education definitions appeared by Kenneth Minogue in his book “The concept of a university”. The term of higher education includes worth and aims of public. Developing the idea of higher education Montefiore (1975) identifies this terms as “the university”.
Brubacher (1978) claims that the higher education includes educational operations such as lecture, tutorial, seminar, research, that express some kind of consequence.
In the midnineteenth century in book “the concept of University” Newman (1996) indicates new idea of a liberal education. Knowledge should be accessible for students. The idea of liberal education is coming from outcome of individual; the self-study power has an impact on studying in universities.
According to Becker opinion (1993) human capital increases worker's output in many areas of development. In other words, Becker explains it as a stock of knowledge, which in turn is a part of production output. Let us define human capital as a combination of information, know how, skills, expertise, organizational structure, and all the other elements of corporate culture which allow to exploit labor and physical capital in a more efficient way: for example, to produce a product of comparable quality but at lower costs or to produce a product of supreme quality at similar costs as competitors without human capital do. Due to the competition, the projects with higher level of human capital are the ones which will more likely succeed. Srivastava, K. and Das, R. (2015)
According Schultz (1993), the term “human capital” is the main concept of the increasing of the company's assets, for performance improvement and competitive advantage. Human capital is the processes that relates to professional skills. Training other professionals to improve knowledge, skills in the company. It all holds to ensure that employees are satisfied and productivity increases, which ultimately has a positive effect on the results of the company.
Rastogi (2000) stated that definition of human capital is the knowledge as an important factor for companies, it means knowledge, skills, and abilities.
According to Basic Theory of Human Capital sources of Human Capital differ by:
- Genetic is a inner state of each individual that has different abilities with the same investments opportunities.
- Schooling is presumably how many years workers studied and which degrees they
- Training includes more advanced investment in the professional sphere where the worker will directly work at. At this level either employees or employer decide which proportion of a budget allocate to pass particular courses.
Genetic Schooling Training
Figure 1 – Tertiary education components
Neo-classical theory of Growth was pulled by Robert Solow and James Meade. Its main focus is in capital accumulation and saving concept. Neoclassical Model included despite two factors as capital and labor, technology. The first way to take into account technology, assigned in equation as “A”, supposed to be labor augmenting and that’s why the Output function will look like this: Y = K (K, AL). This implication means an increase in the output of labor. The second method of implementing growth method is aggregation of technology in both capital and labor factors. In this case, the production function is the following: Y = A F (K L). The second implication is called total productivity index or aggregate production function.
According to Gregory Mankiw, Solow Growth Model explains how technology proceeds with other inputs in the way of economic increase. Previously, there were considered labor augmenting model and here it will be revealed an economy from the side of the quantity per effective worker. As a result both variables are divided per effective worker: K / (L × A) = k, Y / (L × A) = y. As a result, we could rearrange this equations into: output per effective worker is equal to the function of capital per effective worker. In the steady state, which means that neither capital per worker nor labor per worker change,capital per effective worker, k* reached at the point where Investment, sf(k) equals Break-even investment, ( . In other words, once the capital stock get
to the steady state the savings or investments equals depreciation rate of capital.In the Solow growth model the key point lies in saving, the more entity save the more it could produce output, but it will grow until the new steady state. However, to be more effective policymakers wants to get maximum consumption in the steady state. This condition is hold through the difference between steady – state output per worker and Investment. The formula is the following: с * = ¦ (k *) – β (k). From the figure 1, it is apparent that Golden Rule Steady State achieved where MPK is equal to βk. While defining which capital level should be, policymaker should understand that maximum consumption achieved when the difference between output and depreciation is the highest and the MPK slope is the same as the slope of depreciation.
If it takes place that there is too much Capital, then decrease in investment rate will lead it to the Golden Rule level. When the capital stock which is too little it is good policy to invest more, which will lead to higher level of consumption and as a result reaches Golden Rule steady state.
Figure 2 – Golden Rule Steady State
In order for this growth model works, several conditions should be met before. To be more precise, these are perfect competition and the increase either in capital input and labor unit or advancement in technology. It is assumed that each input added the output-per-worker increases at a diminishing rate. In theory of this model, economist prove that with the same steady-state rate, population increase and productivity of labor in two distinct capital stock countries will have a catch up effect.this effect is called convergence. The logic is that poorer country with the same capital stock grows at a faster rate than developed countries to reach a new steady-state. It happens due to the diminishing returns to capital are not sustained as at wealthy countries. But this effect works only if developing countries have technology or knowledge that allows them to produce more efficiently. The convergence process has a place to occur when developing nations learn this advanced technology from developed ones. This what may narrow the gap between wealth distribution across countries. Which in term confirms that while people acquire knowledge they by more chance increase the human capital of the country.
In this paper we are going to consider how human capital influences to economic growth. The type of research that used in this study is qualitative research. The researcher examined the phenomenon through depth interview where the respondents gave freedom answers. The method that used is an action research, which is a process in which students gave their own opinions and for getting the advices behind a participant’s experiences in choosing professions. Therefore, students aged from 18-23 was interviewed.
The second method that was used in research is data collection and data analysis. According to neoclassical grows theory that proved the connection between human capital and economic growth, we reject the null hypothesis that education expenditure does not affect in a positive on the increase of human capital.
Academics have constructed a semi-structured interview with students that represent all Kazakhstani universities. There were conducted 15 interviews with people from the nation’s largest cities: Almaty, Astana. Annually these cities accept 115000 students annually.
Based with qualitative methods of research, 15 interviewed people were purposively selected. Our selection process concentrated on students with high academic performance and professors in different fields of studies. They represent prestigious High Educational Institutions: Nazarbayev University, Kazakh-British University, Eurasian National University, Kazakh-Deutch University, International University of Information technologies. Some of respondents had completely different answers from other and they provided us with useful information related to improvement of education sector in our country. We offered interviewees the option of answering on research question in four languages – Kazakh, Russian, English, Deutsch. One of respondents from NU explained her vision on the suitability of Kazakhstani HEI to the modern requirement as: Considering how big are the numbers of people working in entirely different area from the one their majors come from, dropout rates and the number of promising high school graduates preferring studying abroad, the answer is, probably, no. More than half of respondents made a point that the quality of higher education institutions in Kazakhstan does not correspond the modern requirement. 80% of respondents answered that the best way to allocate public expenditure on education is to distribute grants by request of the market and the request of institutions. However, only some of them considered voucher system. It doesn’t really mean that it is not effective, most probably because it does not implemented before and nobody knows how it works in practice. Half of respondents answered that the education system in our country can deliver competitive specialists to the global market. Majority of people think that voucher system is fair for the society and it could change education system in a positive way. The best answer for the question on the ability of Kazakhstani education system to deliver competitive specialists to the global market is the following:
No, I do not think so. Almost all degree programs in Kazakhstani universities are not oriented to build up solid knowledge in area of interest. (Because they only overload the student with assignments and tasks without teaching the real application of knowledge).
Many university graduates do not implement the theory they acquired during the studying process and as a consequence don’t have practical skills. The reason behind this is a lack of internship programs passed and involvement in real working process.
That’s why they are not ready to deliver competitive advantage over more skilled international students.
Local society does not recognize what does it voucher system mean by itself. The concept is determined by Jongbloed (2000) as a specific way of funding education. It is channeling the subsidies through consumers (prospective students) to providers of education. According to Blaug (1967) a voucher is a kind of “coupon with a prescribed purchasing power, over a specified service”.
As we can see the pie chart, the answers of respondents of what are main factors of major selection can be classified into six categories:
Figure 3 – Six categories of major selection process
By the experience of students they believe that parents consider education as an investment, not expenditure. This trend is good and provides us with the information that parents understand the relationship between acquiring knowledge and accumulating human capital. According to Solow macroeconomic model, human capital is a part of economic growth.
Most of them also respond that there is no need to spend more on education but improve the quality. However, many foreign studies showed that our education financing is much less than in the European countries. And they raise the question of private spending on education.
Actually there many ways to improve current situation with education in our country. There is no one particular answer, it is accumulation of many. Firstly, government authorities should understand the features of locals: their learning style, habits, the way they acquire knowledge. Kazakhstani level of knowledge out of 127 institutions is below average and the roots lie in the mentality.
It is important to deliver from the early ages that education is not about diploma, but about your implementation of skills and bringing usefulness for the society. The answers showed that around 30% of highschool graduates choose their major based on availability of grants. Which is a big concern of what kind of professionals and specialist do we get. It is much more concern when people get the treatment from the doctors that passed their exams through cheating or even buyed it. How can people trust their money to the pension funds, which was governed by people who never passed investment course. In order to produce something meaningful we need to invest in quality of education, not in the number of institutions.
According to the Report of World Bank the introduction of Voucher system is a more innovative step towards the increase in the effectiveness in distribution of public funds and also rewards best private institutions that are chosen by high-school graduates. The World Bank report concludes that Voucher scheme promotes better quality.
- a) The null hypothesis: Education expenditure does not affect on the increase of human
- The alternative hypothesis: Education expenditure affects on the increase of human capital. It was noticed that the number of Higher Education Institutions reduced from year to Number of HEIs (in academic year 2015/2016) is 127.
Our team has gathered the statistics of public education spending, from 2011 to 2017.
From the graph below (Figure №1) there are four indicators, such as: life expectancy, education, GNI per capita, HDI that was observed from 1990 to 2014.
In the 1990th the level of education was at 62% and HDI rate was at 68% approximately. In 1995 the HDI rate reached its lowest level of 66% and then it has a positive trend as well as education. Education rate increased constantly from 63% to almost 80%, while HDI leveled up to approximately to 77%.
Figure 4 – Trends in Kazakhstan’s HDI component indices 1990-2014 (Human Development report 2015)
Table 3 – Committee of statistics of Kazakhstan Republic
№ of grants distributed
The average cost of a government grant, in thousands of tenge
The total amount of allocated funds, in blns of tenge
As we can see from the table 3, the number of grants reduced from 36046 in 2011 to 31700 in 2016. It has happened due to the fact of contracted budget allocated to grants and scholarships. It was calculated that on average government spend about $300-350 millions of tenge per one grant. On the other hand it is apparent that the percentage of Kazakhstani students has increased in top international universities. It is also worth to note that HEIs education services provided should correspond to the modern requirements. Why should government pay for the education that is not demanded on the labor market? Therefore, we don’t need to increase the number of such institutions, but to be sure that everything, including facilities is provided.
In the research, the human capital was considered as integration of the level and social-economic situation of the population in the region. Academics used the estimation parameters that are unambiguous. That means the index formation was either positive or strongly negative. Region was evaluated on the scale ranging from 0 to 10.Six important criteria’s were considered:
- Birth rate, mortality rate
- Ecology of the region
- Development of production (GDP per capita, investment per capita)
- Accessibility of goods in the region
- Level of attractiveness of the region and level of spending into human capital accumulation.
- Development of social infrastructure
The analysis had divided the regions of Kazakhstan by the following scale: Group A: regions with high level of welfare
Group B: regions with satisfactory level of welfare Group C: regions with low level of welfare
Group D: regions with poor level of welfare.
According to this scale of welfare distribution the following results was received:
- 5% of Kazakhstani population lives in "A" region
- Approximately 14.2% of Kazakhstani population lives in "B" region
- In the region of "C" lives about 37.3% of population
- In the region of "D" lives about 15.4 % of nations of the Republic of Kazakhstan.
It tells us that mostly people live in low level of welfare and approximately the same proportion of people live at the high and low standard or living conditions.
Tertiary Education financing has a tremendous effect on the economy in the long run. That’s why Human capital accumulation should have a special place among other factors of production. The sustainable increase in the economy may bring Research and Development throughout the educational organizations, large international companies. The amount of budget allocated to R&D in Kazakhstan is comparatively low. According to World Bank Report, such countries as India spend six times more on R&D than Kazakhstan and China that contributed 1,44%of GDP into the development of science and technology in 2004 and constantly increasing their spending on it. Because it's become evident that this leads to new investigations and make the production process more efficient and effective.
There is a huge demand on education financing through many instruments. Analysis had shown that many people will afford their children's education if they have an opportunity to get loan with low interest rate or if much more local and foreign companies provide them financing by fair conditions. Kazakhstan has low coverage on Tertiary education in comparison with Western countries. Admittedly, that parent’s support could considerably affect on the ‘human capital’ accumulation through special programs that directly benefit students with better performance and academic results. Financial support into the areas of education, such as, colleges, universities and professional training courses will deliberately have an effect on the increase of human capital.
An opportunity to get new knowledge and skills, to be competitive in the market accumulates human capital. The key factor that government and residents should pay attention is voluntarily offertory to poor lay of population. It will bring positive outcome in the overall well-being of nations inside and outside of the country. The world’s moves towards total change in the education as a 4 years of studying, but transform into education through life concept. Which means that knowledge that students acquire are always updates and involves human always to renovate. It comes to us in the not distant future where people will choose the programs they are interested to learn and there is no need to have such large quantities of universities, institutions.
So, the suggestions of this research for further improvement of education system in Kazakhstan in order to increase Human Capital are the following:
- Implement west countries experience
- Use not only public spending, but also involve huge companies to provide grants and scholarships
- Give educational sector more freedom in regulation
- Change mentality about education process.
- Increase spending on R&D
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