Private Return on Higher Education in Pakistan

Malik Fahim Bashir andMuhammad Mazhar Iqbal

Abstract

Since the development of human capital theory, education has
been established, by various empirical researches, a key
element in raising the economic well-being of an individual
and a nation alike. However, demand for education in general
and demand for higher education in particular has not picked
up, so far, in many developing countries including Pakistan. A
probable reason for this paradox could be the discrepancy in
social and private rates of return on higher education.
Therefore, this research estimates private rate of return for
four successive degrees of higher education. This study
considers education by degree and estimates private rate of
return for each degree rather than social one. Private return
on higher education has been estimated by two criteria; NPV
and IRR, considering explicit as well as implicit costs and life
long earnings. Results show that private rate of return is lowest
for PhD degree by IRR criterion and for professional bachelor
degree by NPV criterion, so, to boost demand for the highest
degree of education, private rate of return must increase that
can be achieved effectively either by raising pay scale or by
increasing retirement age for PhD degree holders or by giving
interest-free scholarships to PhD scholars.