Discussion Paper No. 13 of 2002 on Human Capital Externalities and Returns to Education in Kenya

Abstract

This study has used micro data to analyse the effect of human capital externality on earnings and returns to education. The parameters of the earnings function are estimated using the ordinary least squares method. The results show that human capital has a positive effect on earnings, indicating that a general increase in the level of education benefits all workers. The general increase in female education benefits both men and women, but men benefit more from it than do women. Private returns to education generally increase with the level of education. Taking into account human capital externality reduces returns to primary education but increases returns to university education. However, the effect of human capital externalities on private returns to secondary education is negligible.