State investment in higher education: Strategic targeting

This paper takes a two-step look at state investment in education in developing countries. Historically when countries gained independence, one of their first thoughts was to make themselves self-sufficient and a big part of the solution was thought to be investing in education in order to ensure a ‘brighter future’. The state, especially in countries such as India, continues to subsidize education at all levels (from grade school to masters and PhD levels) and the subsidies are generally given irrespective of initial wealth levels of individuals, often to have the beneficiaries leave for foreign shores upon completion of their degree (the so-called brain drain). We construct a model that examines the effects of introducing a commitment mechanism that requires students to compensate the state if they decide to leave the country. We enrich the model by dividing education into two sub-categories- technical and non-technical. We derive policy implications that discuss the conditions under which the state should subsidize technical education.