World Bank Reprint Sekies: Number 117

Terry D. Monson and Garry G. Pursell

The Use of DRCs to EvaluateIndigenization Programs:The Case of the Ivory Coast

Reprinted with pelmission from Journal of Development Ecottuinzics, vol. 6(1 9), pp. 119-39

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Journial of levelopnment 'ononulics 6 (1 9791 119 139. t North-Hollland PuLblishiitig (Compan

TI'HE USEF OF DRCs TO EVALCATL IND)IGENIZATIGNPROG(. RA AMS

I he C.ase of the Uvory C'oast*

Ter-,'y I). MONSON

lli hi.in I t-. JIc .}0.01iio zl Umv( 'uri itt. Iu,mi mn. MI 43.; 1. C St

(;arr) CJ. PURSHIl1

Decbpyinent RL search ( enter. World Bank, Washington, J)(' D 1433. 5A1

ReceiNedi March 1977. In[Ial serstoni receixed April 1'S

The DRC methodologx is extenide to e%aluate ediwiai on programs for purposes of in-digienizaition. Such pro-ranis ciiii be likenec toi an import-suistitution acti'itv in whiich locallabor is produced to) replace pie, oU lk imported skilled( foreinln labor. ihe milethod is thieapplied to the problemi oif -paitriate laboi replaceniieit In the I ory (O'mast

1. lntroduction

In this paper. xNe applx tlle domestic resource cost of formeignc \cInŽc(DRC) mnethodotlot.v Inl a uillqluLeC fashion. As commonolv used. DRCs analyzcthe foi;eign exchianige geiret-Ing orL sax Ning cipabilit ics of ecolIoiLact i 'Z ities

piOLdtiLCing goodls. lowexer. uinider certain cRoiirli.li I)RCs can be lised toail%ie the replacement of a tloxx. of frorici, labor .strrices.. In this case, otnecani conCei eOf a counw,trxs eLd uaZti01I;iI sl e as an import-stibstitULit ion

aictixitv in wlhich local labor is trained to replace pievioti>ly imported skilledforci'n labor.

hliis concelptnalial Ii is x.'il tblc for sc\ eral reasois. First" it can beapplied to more Lotinii ies than one might initially imaginie. Becautse of

I hi papei is a byproduct ofl a WolId Banttlk research project oln ecotinomic incentives aniddomestic resource costs In W,-;i Africa. directed 1w Bela Balassa. In the I1wrv C'ast. IhiIresearch was ctitiductedi jointlyN vtih the ( Cehtre Iiroilrcn de Recherchies liomihl)vniu et eIsocial'swvhere Professor M\lvonson uas on miss1ion titider thle Francophone Program ol the (Center forResearch on Lconoli I)cDexclopment of the l iiersit o NI o uicgan Aii earlier version waspresetiteti at the 19)75 meetings ot the Midwest I conomics A nsociation. JIle authors wish tothank ('Charks Ilitue . Anine 0). Krtuegerl. (Constanitne fichaelopotilos, I).i II l)Daies, Richardt C.Porter. Ind twdmo anom,n u,ni referees for e'II' comm111ellts on eairler drafts. lo1,mc%ci. thie Oiewsexpressed liereini are the sole rcsponsibilitN l tihe iiimhiN aIdti are no0t necev9;IIl) shiared by tlleindi% iduals or igaimiii .in 'us named ahbow

nun!pinl inii cOpitrlittitOls oir iirilv.e dna; oi:il es\Ntelrs. forign laborofteni ftornrs a large pait of tthe Lllrn11a1d manager . iiit.l laboloce111 in1 mande\cilolpingc areas. I-For L0nl 1 enhidler sn-Sahlaran Africa. h'llere we fintI

rolejien11 nationals emploed in varius ipilies> in llri l% eN tr contrl .EFlropean expautliate arV mo10st lIPt'ilin! III thle fil0iner F rench colonies, tIlexaire less ni ptiait hoIt still ni uieroluls InI 1!chel African lia oi ils a.s well. O)t herlorgirin nationals e.eg. Asiains, Sy rians. I erictnse and (i recks)i are acti\c incomtimXerce atndl silmrleLra scale e n tlIerl devc1 pilare'sas the,tII Lrit III is teiieit ILIII the samile. (olnequelitlxI hid en I/i It In effors. i.oe..ed icatiOll io`uprgramlilsl to Itrain local lab.r to replace IlOreianil nailonals areoften important conlipto'.iiei o titpo'r'ii pgia'irii and Call be aill\/iedwitlh oni- iilt,iloii L)R( D Rn ICHIhOdOlO'gx.

N second(i rea:slon tf)i appklxinn Onr nodilied DR ( ' ppio tichli to in-di"itei/atio 'n programsiN is that ci rr>on is proir(l(o kpro\idd bet%ccilte fl,iieXCeha'nn1e ll.;.oa' it lilational expwinldtrilrre and b} e\pcnlitii N in mi(oredirectI% productile Co0ir0inic actix\itie.A At present. DLR)( s are used to analieIIdtiIt II il r Iv cI IL: i rI u al it tist ill man I LD)( s wile the standardaIpproach to thle all\ sis oft 'dielil o is the ost belflit ([3nt'1lroologRestilts fioim 1 t hese tx} .ppiroaches are rlilt di1ltAk l 'COMIriipi able Wilthin irizl extra Lftrt. I)DR( Canl be estiln.,mt 110onl datat used ill thie (E13

approach. therb. pikI,k upplenien ii -rippitittl 1r vresource allo-Caltion ii' ius a w lI h a tlr' blree se t4 l's i.e. education, inidst rx andt1:iHeriLillriL . Ilhe te '1'! 'c "!. tien esIx becomtlle \.aluable Complements illeases \\i lhere miih'k ill 'tIlt'ill i s1 a l l an Imp i I I t p I I eII IltI I Of editit.tr'ilMon {

InI this p.r I we I p , i the. l )i ( riRcthl,.dolopx to) the case of expial a tereplaccnrcnti in the I orx (Coast, I lie IxoiN ('oatst 1is pa hcllIal\k irllteIrslinc.eashe studx since uropea') expatrliates -r i'lt Ionce entll x percent of' tllemodern{t'l sectorlt a:i li'riatl andll techntica l lFbor e inallv. x\e bnictlecomipare the results of thie D)R anlal, sis xxtri riiole comcnlit tiial coist berlIiinlnleititd' applied to tile sallic tIa,t. .

2. A I)RC nio(dc to eialuawe v\pat aiel phcl:ement

.1. 1111roductltt¢1

Ilr thils -. L1l0oi '\C OLlii 11C tIne D)l H in11ld Cir l ca he ip'icI10dl to (liel'\ uIliratior-.1 ' o duicL ro f,111 t11 irrJ,2erri ' mij I prt'ralls1s1 r oi lii .iil! dpl'I.l.D)RW( s exaluate cx si irig or planned e8orionnw actrxriles wider etIinili trr ii)

\ Ililn fo,r II,-, cx aIrd I sIll a corI rI t IaI,ll ( 11 cco''li-irll IC d1e,'IlrI I, II lhe I) ('ettelfierernllls IidiL.il. relatixet,.11. fr.i, 'ics of1 illlte inatixe fr 1 ci lldllc ilPro-

I a , r t 'ot .ti .' ik I of ' t i i iw D t Is tntc' ! I 'i, ilr i . Ba,i., ardi5.1 xtoxx-.xit 1I')

T I). MI)t.im wM I ( i. ;. G PIIUI 'Sl, I I, I Lli-,IlI I/l 1)1'( P g't/I1 121

dluciing activities aind isolate ar-eais in whlichi a cotintry's comivparatitke zid%ani-tagle ma% lie, given the existence of distortions betweeni ii terntllioial anddomestic rates of tra; oiNalfo tion imiiplied bx the foreign excln-gc cowroust rain iStubiect to some qua!ifications,-2 zctix it ie canl be ranked without the in-troduction of a shadow e\cliaitc rate. Witlh the cost benefit nietlhod,lhowexer, the raniK ino of activities delldeii. uiponi the value of the sliado\dexchange -;Lei. 3

B3efoire tuirtninlg to tlle details of the D)RC nmodel, sexcrzcl --eniial conllnilenkare in order. We e0nccpt Ltili/c c\pn trinte labor- replainen tI. as an import-'.tlbtittLti01il actl%i' . The prodUct to be -rcplaccd is anl imiiporte(d flow ofe' pat i;ln a ILbor serx-ices. The r.eplccimelul is a similar fMm of trainied local

labor-services. rheimport-uhstib tuiLtion actixitx to be analvzedistheeducLlit) iolIprocess thalt Irro' idce the local labor wvith the training lneeded to replacecxpatriates. C osts a.nd retulr oll Of thlis aci it u Will occLur oxer two timeperiodis the traininig period and the period in xlviclh replacemnent occturs.

Our analysis of the indigen i/zation process is marginal in niatture in thesense tlhtL %V' ct'lCLcS 111u011 c ahluation of the replacement of a margiinal tuit ofexpatriaite labor services, given a country's currelnt occtip ional and edLl-cational sIC[Ldii re. This approach iM ipics that WCe a1alxiV the C dL netioiilreqn irmit ts l neede(i to rcpl.ce onie e\prat fltte in each occupa)101tion. IloNVeVer.for- ari ioi, reasons, more thoan one i nit of local iatbor may iiee(d to betrained to ireplace one Oxpatriate. Our dic 1ion m11USt theil be frmed intermiis of e\piati. tt eqixalents. A imettioth for determinino these equi\ alenciesis outlilned in subectin '2.3 belox.

Tfhe marginal natLtire of the analysis also imp lies that it cann1lot identifxsti'Luctural ehl:Uimue resultinz fri'oll education nirii can it prox\ide a cominpositexiCex of' thle ed ucLatio0ol ul process. As regards edtucationl ge-ared towar(s

ilidit'.Citi,ation. the metlod( is uLseftul f'or dliCLstis,ii the eonMtiiilliatioil Of

existing programns. or iiicrteiniitaltl Ch11g111eS itl bIuC111 t ill d 11Cd'1s tO e b sup-plemiienlted whenii exaluating loing teLrmii clnge's in cdmlic:llionaI i l rtlic'.. Forxaiilmpl. ouir anaklsis couild be uised in conjunction withi a dynamnic miiotdcel

stluch as that dcxeloped bx Louis Gorenu\ et al. (1977). (Gioueix's ilodelaesseIL'N S dynamniC pblemls'll, suichl as the timing of ed. ue itinal exlpailioln soas to) ensture that the flox\ of graduates frntlll tile edtlCtllica io l '\ste]i xloes n1o0te\ceed the economN's .ipicitci to absorb Igigll educaited 1.1abol once thecxv.1ptia ts are ;epflaILcl. HOWe'em. these st i neitiil and dl\nani c coivMider-

h1i order tor gn lakillx,k Iuindepentdet tX1 tue shado\. ex'chinge rLtte. tiic D)R(' i liotdiii'il:u;1 assulilulc tilalt tile L0plitiI 4i: it1ss Inl tile Iimt11 illttat n ex plcsscdl i11 tertmis t miItm-traded goods aiid seixies. Ns, as n iitei ll time ti\t, In ordet (in lank dioseitnted t)R( N it ismleCeslsa t'. atssdUne that the sli.(1Nx sncli.ive nc ate is ijlittiangedi nx t.r t tie perilots coosidtiemd.

'()I tile stalindar'd cNn'.ois tun I't Ltor in ltie I ittle Mviiltees nm1ci 1od .,\ D)e' t l)epaik lI.al ( 9 7 4iItoxi, ide sIa suicIct sllininiar andlti C0ii.ip lonll nt l tile nllo'in lle'li e1til

122 1T.1). Monson and1 G(G. Pur'Nll. Indigenization io,0 gr)tgrtN

ations do not invalidate our procedure, but ratlher emphasize that its resuiltsSIhOLdId be intierpireted and used withi due caution.4

Finally, our analysis eXCluLdes externall efTect and inconme distribtutionconisideratioins. Thcse factors certaini) '.ouL be important in mzaniy coulnllliesbut data for our case St'e were sinpl\ n(ot available for inlcluisionl in ourino del1s.

2.2. A DRC model of expatriure replacement

As stated earlier, DRCs are conimonly applied to e,valuate alterna keeconomic actiities under condfitions of foreign exclhaniige scarcit). ['or ourproblem, we may tlhink of the I)R( coefficient as a cost benefit ratio. Ihledenominator will mlleasuLre niet marginial uniiits or foreigni exclhanlge savedper expatriate replaced. Tlle nuLMIerator wvill measure the niet opportUMIntNcosts of domestic reNourees expeind(e ini tr-aininlg local labor to repflace theexpa trniate. Thle term 'net' is imnportant to this descriptioni of' our I)R'coefficients. Both costs and benefits of indieenialtion cotnsist of iolestic

resoturce anid foirlion exchange clenlents. These eleninciits are first separate.then assiuned eithier to the lii. lelratOr (t.l ltildoliec resotlrces) or tt) thedeloonlill tor (foreign echan-1eC). ThtsLIS, Ionictslic re, iimce benelits are niettedfrom domestiC r'esnilce costs in the nLiLiIIC-rltn r a1nd loreigii xc\lihngc costsare niette(i fromii foreign e\xchliio c beniefits in thle elnoin initolr.

T'o see the process more clearl, considler the benefits lirst. 11ndi;.elliiationlimplies that income pre%xiously paid to eC\1itria tes iS dLiverted to local labor.Since we miay assume that expatriate labor is si nfillmr to any other traded(alad in this case imnportedt iniput, the benefits of the import substitUtiollactixitv coinsist of the (1d\ilred iniconme. I x'xci, as opposed to a trii(de(dphsi.nl illptlt, importedCL laboro serNices aire paid for in both florcioii c%linl ucand domiiestic res.ources. TIh'h ore, thlis belefit muLst be 1eprln;tled inito thesetwo eliietits, onie entering the numterni !cr. the othler the dLcnlonii, it .r.

Ani expatriates inicomie in \ ear t canii be broken downk'i aiS lollONVS:

Iiicotiii, -- S, t Al, +~ D, +- ltaxes

Thle foreigni exchanigezc elemeniiti eniterinig the del,ii0niiaLtor, of the I)RC co-efficielit collsists of ,, tlhe e\p'.triante's saxin f pluIs i,, his eIpS 1ildiiSe on11

'We thallkill .1an 0 a hniOi,i lretelee Itm cimplihvi/ing tlhe aboxe p0l1lit. an1d tOr ako poliiting. outthat ouir .i ia1 assumies the aisenee olfa stick of eduvcated emiploted capable oif 1 epl.ii-.e theexpaLtriates.

%e assunme thlat ail expattiate smiiigs can be and are repili lted millotil lSiictiolI hlisappears to) be the case in the I ' ors ('oast and inl most tit the fralilc /Olle Ctonflinre. 11 a Part ofthe expatriate iAs iieu were retainted 111n the lhi,st country antd perhlaps e ciii ii. spent tlhere, it\wuld be necessary to allow lti dometie ti esource as a% tll as ho 1l1:ii exchlange components. Illisiii.i\ be of some Importance In lnilltrles In wkhicll thiere are etfecotiLe oelnlmlelnt controls onexpatriate remittanices.

T.1) A fnMoll and (;,(i. I'll.'r,'1. tI,Ii, ,s2 I. 11 p11 iil, ri'/' /IHm 1 23

flL.1 trNaLedL goods (valued at border price")` and his dtirect spcndiid outsidethe coon I r1 TIIhe domiestic reot!kice elemenit of tlis di%ci ed ilecI n e. D1 , isthe return to tlomiestic factors of' root)l l on CIclI ded in the Vae of non-traded goods anid services consuimed by, the eyatrliot. Thaese domlesticresotirce costs of opprtiung the expatriate are nio longer incurrecd whleni he isreplaced anid C0oosCio.tlll are s hi r,icled from the numerator. 'Ihle taxcompl-nenit or th.e replacetd expatr-iate's inicomiie (ilnc1ili taXes, imp1olrt duitiesanid consumption tii\es) tare not inIcluLded in this ;mil ak is. I'axs are niot acost fromll thle CooLntry's point ot xiew. I lece, nlo correspoodilig tax betnefitresuls whenI the expatriate is il pcla'd.i by local Iabor.'

(O)n the cost side, we separate costs into) those incurred diti liill thie trainingantldi thle rCphla.celiil.io periods. D)urinT tiai . iii ii the direct cos"ts consist of( ,d(linetlic resoUrces (land, labor, and capitalt) and FN . koicrgil schL11:iiyedinported labor serxices. traidedl goods. etc). 1direct costs are ',. ailtri'-itix ecar niiigs foregone by the local wNorker duiriiil the tr1iillilig Aili ' All,these costs in1cLurd (ILI -ring training ar-e del'iine(d ais costs per succssflstuidenit. alltxm inc for dropouits and failures.

During the 1rplacenlen I lcritid. tllere is only one cost. This is tlle illctlilleearned by. the local worker h ad lia liot beenl ri-miied anld hal d i lie not replacedt e aa T alue Of these ;1lteLriiat ie ct iigs is deolted by 1, Wemuillst incluidle tis corst in our anal silte we ltilite tilL' touut! itlUlenl

dixerted(i romi esp t iaI;cs to) loca;l xorknes as a be-inefit ol ipklceillicill t1keep ouir :l .; scon sisteiit, *Ne iniclude Ilt iotnln te costs liltct'rretdl dim-inthe training period but aot) tIle locatl labor's c\pecltel total iiii' Li'1 Inalternatixke cmlph\ ieiilt ie Were lott t1id HL.

Ihle dimie.'.tic resource costs, (C. L,. tn1d 1. atre aidided to th ililinlieraitor- orthe DRC ratio while thle foreigun exci.ia nccst. FA,. i' iht1,rcti:tCd krn tiledenominator. Thllerefre. tIle nimiler:it r lpielsLi'lits tile d(liinicst c resolUrcecollmponlelnt of costs fromll wicll D,, domestic resoUrce belleXlits alreC iletted oLut.TIhle (ilOl0iz ill 1 tor c0ilsiSts of11 M, t S,. thle OICi1ci1l C\k\c11la 1ow portion of' i ic 1'1iiformerly paid. npat i iteis mos F'.Y' thl ie i Wle\ cli.iiiite costs ol' .i'idiijiithle local replileil

hliese colnceplt t`e summari.'111i1ed in eqi. t1 beloN in \\hWh cli costs andt

iittildill itwi bnider x ' ni 1 ot tiratla altcak ''n I A. C'\pciilitill t'tll notnll IrItdtd o' tk'.

*tt \''1 C iti,i )i,d I 1Wt'iiIC ii ,xi'" n i'Cpuiiui' at s i h n ihIdClidti' s'i it' lifiC a t t1 %ic'ati'olh i t Iile hllitt t tollW! ' ai lld itil ett IIIttCi e0 .1" c1%Mle n ut hl idt

tp'l'l,011". eikll t cl,('t.)..\ot ha'li.t \wt tlil"tIdel, thvt' andltIIL ,I1K t.\1" 1 ile evallsialkti a,1 aI olt lto [hle Iml¢)

t'ttlilt'ltlN lIIth rtha ti- i e.ililg hish InWtille *lE 11l "IT"It'lUllII co1st ll 11Ille 'C11i'e Sof olitilitl lowplt'' le

lIlkme%e,l lcl hlpelkltlit! n illlgl o.\11s*f 4otLal a-'clttlels 1t IlIt "tIllIdeIClt'dl .1 Co't% 'likIe tlilfUittlt9"8C it t' SI ht 'ct l il i all.lls I, in tt f 1id,iill. ' ttnit".il it ulIt ntm1t'

*Bothtu I., L i at 1, iSeC lht'ltix ) iill(Al at111 (e doinCl letl, eI mc4 ili Cc co'dh '.tii 1hould he dttit'tl ill "idsloatlprmttts Ilel t CI C pinIsl olnln,itt i ell i eilldii til ' Ii'm 1 'uhik' I i Ti , t ie l Ii C iI in hu0 the o ioltillll\ consto! ihnuol I'ialadtlv\ vx agei

124 ED1. Monsn tl ndG.G. Purwsel. !hfdlig'iii:,i/,1, pW0m.l1S

benefits are discounted over the training period (t- 1,., i11d, antd thereplacement period (t =n+ 1, n),

zCle +. E At4 " Dt

41+ M+ (+ I U + 0i( 4 iDRCJi *=± ' X

Al (1 + St FV

tatE1~ ~ (1±srE,li)t

where

DRCj=Estimated DRC coefficient for expatriate replacement in the jthoccupation;

C,=Sum of domestic resource training costs per suLCCessfnLl trainee;E,=Foregone earnings per successful trainee;A,=Alternative earnings per successful trainee,D,=Expenditure on domestic resources per expatriate;S, - Savings per expatriate replaced:

A,1 =Expenditure on tradeables in border prices plus other foreignexchange expenditure per expatriate:

FX,= Foreign exchange training costs per succcsslRil traille;i= Discounit rate;t1,.., ,tn (ed ucat ion:il period), in +,.... i (working lifetime uintil

retirement).

Provided the shadow exchange rate and tlle other shadow prices areunchanged over the period conisidered, it is wvell known that eq. (1) will givethe same accept-reject criterion as other cost benefit n rCes1nCS," i.e. accept(reject) the project if (i) DRC<( > ) ratio Of thc sh.adloW to the officiaiexchange rate; (ii) cost benefit ratio < ( -> ) I; (iii) internal rate of retnlln :>(< ) shadow rate of discounft; (iv) net presetlt value > (< )O. However, none ofthese methods will niecessarily give the sarme rankin!is of acti% itics above andbelow the cut-off point. The reason for this is that the methods areconcerned with different (thlolugh related) questions. For example. whereais acost- benefit ratio evaluates activities when the object is to iminimili/e thepresent value of a stream of costs in relation to the present \ ;luLIe of a strealmof beneFits, the DRC eXalulaltes these activities when the object is to inininii/ediscouniltced net domnestic costs in relation to a dkicomited striacllm of netforeign exclhanLge eirnings. Because of the nettinig of (ldonestic benefits fromiicosts in the nUmerator and of foreign exchanige costs from bneefilts in thedeniominator of the DRC coefficienlt, an activity may be excepionallyefficienlt at earninig foreign exchla1nge and yet nmy ranik lower in terills orf thlebehefits received for a naizrginal Cost oulatliy, or the opposite may be the case.

1°F.g. see Halaii';a (1974).

I D; \Inr.iPu luri (;.(; I'u r I'id. ili; ii . iii U ;'l i<, .ini 1 25

W'hile this diffCreice mila appear to riltd LIC'C some mlibigui l iinto thec' ildu otin of oraix itk js by the xvi riou methods, it shiotulL be emnipiasi/ed thatthe rankings resulting fronm the 'suminnia'% iiildit;ltii really indicate prioritiesto be gi'.en to expilusion or con!traction ait thle inn r cili. since if thle shiadowprices are cortect all the prolitable actiitmies should be iraLmin nib, expandedand all the unpvofitable actixitics marirginalll o '01 lL1cd

is mentioned ahbo e, the decision iutle [or the d si, niried DR)R( is tocompare the ratio given bh eL. (1 ) to thle 'l1i;IlI'. exCh1nllge I ale JII hisohxi'.ioslv cannot be donie if the shadox. e\ clvmnge rate is expected to changeo,xcr timiie. Moreoxer. if thle 'l1adIi'.' e\c li ate ch'anlges. a,lli ot ihte sllade'PriCes x ill Al c. iIriLdiidiiLg thte olia.li cost of1 c atIri; ic hlaor. 1or e\,i pylc.if. with al fix.\ed official c'xclrangc ra'.te',the ratitol oti' he sadowt to tIr il ctlital I' 1eelia ricrate i ncreaeN. tlhen D1 , will i ncri'c:he i.e. e\xplrl liL incomes will rise in order toni:iintlain the same or a similar level of' real expendititure on (Iinleslic non-tradeableN iI

W;'hile in pirinciple it is true that w-e c;arrn( t expect s1r1MrdvX prices to remllailluiclimiiledl over the periods beinrg ollsidCleed (education period plus ". orkuiglifetilme), the estinlation of slad', priices lor cuirrenit or p ast periodis isfratughlt withi \'.'cl-knim ii il'l'iTullie aid subd hjectl to \%idd rillri 01'f errlor,

('CorisequrIcllx, ais a practical ni. riter. unless a il b t lirille dloplxdo luliri Can he

foreseen xvithi 't1I1 'idCerc we.g. oilI disci'xeries, mater tallilrt'e feflr Ins), it il

seldomn proe \xortilmlrilcl a!twiIr ilipru to estimllate hlititr-e shadow prices. 1s an'.stuch i esti nrales x ill usuall fll \xlIxlriir the ralnge of error of' esti matesbased oni the prescnlt %itidtiori.

2.3. Expatriate tqriialentn

fLl. Ill is fOrmu1lated oll thle auiripl mpioj thilat one tr-aiiiedl local xvorker canreplace one expatriate x% orker. Ilis assulnip err max :n it he justified. lIn mlostLIL)('s. 'lar\ atid ux.agc differentials exist hetxxeen local and c\I ri azite labor.Although soeo-eultural factors max aIccotniit lor somile of these dirfercilials.more likely they are caused bx real producthixity differences diue to higherIC. el, of exper-liice of the expatriate labor h iree. Firms hax e a choice ofii ring a traliie(l. bItt not experienLcd rat irril. or at stIreiii or renie%%able

cypriericed cx palrii a bo hr be serxices. ()xer his xxi rki lr iftinic tIre rrali oinal

iWVe are indebted to) ant i nic !cti"'et&Irec I iwi al'.t point It ouiild be addledi tiilt tilerUpplhi price ol expatriatres wil also depend'rr ton iiell at ixve can ninigs in r lit litille cotll(Intlis.

%Oxxinch. ['r Turopean expitrrats Iii AXlimrca anil he C\pc ted tiii isle III r cal tetnix. llowexer.diange' in ilie sources of expatridats e pef iaps .- s.LmL:icld with a dix it'ihcaioitiol tit t1Ir souarees oi!kinreti iotengirn in'esinrent may lead( io a tItecliie Ill thC 'st tii e\patllate' it. tifrxcomle from

oantlirres ml xiti lowner pei Capita ircollles.( B 3aciIa and T >tx 19r i '1 I

126 T.D. A-fotflSoii ad (G.G. Purwtll, iiidigienii-uib)m pI4roriin%

will have a productivity represcnted by the area under his learniningC cuLrerepresented by

wI , + I ,t"d t. (2)+ I

Over the same period, a renexwablc stream of experienced expatriate laborservices could be, hired at a constant wage, W. 13 A compralisoni of thenational's lifetime producti ity to that of the expatriate labor stri.eami willprovide us with an CeLuialency ratio gixing the iuii-nbr of nationals neededto be trained to replace one uniit of this expatriate labor stream, Eq. (3)defines this ratio while fig. 1 illustrates these different coicepts.

R =1W,{n - (in ± I,, tzd t (3)

This equivalency ratio, R, is then applied to eq. (1) to obtain an expressiongiv,ing the DRC coefficient for training R nationals to IrelaL'ce onle expatriate.Eq. (4) incorporates this mcasure- Note that only the 'costs' are niultipliikd byR since more than one unlit of labor now needs to he trained(. Thle t)'ienrits'remain unchan cld; only one expatr-iate is replaced.

(E(1+ E t'E(i A, i_ )t _ "tE D, i)1R ( i) )

DRC R (IZ (1± ± "I I (1Ir)I- (I 1 (4)

DRC coefTicients calctilated from eq. (4) sh.ould be interpretedi as giving thecost in domestic resoIu-ces per unit of forcigin exchange sav ed in thereplacemenit of a marginal uniit of expatriate labor. When this ratio is lessthan one, replacement is an efficienit import-substitution actik ity, at theofficiail exchangec rate. That is, it is less expensi%c to prodtuce a wvorker locall)than to import an expatriate laborer. If the exchange rate is overvalued ltheDRC coefficient wvould be divided by the ratio of the shadow% to the officialexchange rate, and would have the samiie interpretation.

'3Our analysis is simplified by the assumnption of a constant expatriate wage. Obviously, licicwill be some learning-by-doiing as expatriates acchitom ihermncl. es to working in a foreigiicontext. Their s%ages sliould rise over timc also, A mtore c\ticting ariilN'is would have adjustedfor this consideration, but the data do not permit suchi a reiiincmiciii for the Ivory Coast.

T.D. Ad onsan tandr G.G. PurwlI, Tndiivt'nioaillo proni,nIN 127

tNaqps andProdti tivity

1+1c 1t'

r +1 . . . . Time

Fig. 1 Life time prodtictivities: An indigl!enou. antid an expatriate labor stream.

'cNgatie DRC coefficients here may have a different interpretation thanthose of other DRC studies. As Llsuiallv interpreted, a negative DRC isunravorable since it implies ncgta,i%e net foreign exclhanigc earnings, in thedellominator. However in outr DRC cotfricilent, domiestic resource beniefits

are deductCed from donieslic resouLrce coStI in the numerator. and foreignie\chang,e costs are (de(dicte from foreign exchaingc benefits ini thle de-norniinattr. It is possible that either numerator- or denominiator (or both)mav be niegative. For our case study, it %sill be seen that while net foreignexclhan g earnings are always positive. there are a nutmber of cases in whichdomiiestic resource benefits (foregone expatriate consuimption of domesticservices and nontradeahles) exceed (domestic [esourVCe costs. In these cases,the negative DRC indicates an attracti%c inestmecnt possibility. Tile approp-riate ranking of the coefFicicnts tlien is in des,cnding, order of the absolutevalue of the negati%e coefficients, folloMed by the pos.itis coefficients inascending order.

3. Indigenization programs in the Ivory Coast

The method onUtli ned above is now appliled to analyi e ieplaceinetit ofexpitria te prersonlniel in fouir brioad(i OccLuIpational cattegorics ill the Ivory Coast(imilnlgemn in, techiiiicianls, Sup1ers iSOrs, andl Skille'd (offi 1celabor). Th'le sCope

1 he term 'technician' is tised here in the broader Prench sense to include all employees withspecialized taziining, e.g., corpnpter programmers, acecoutitants.

128 1.1). Al osn adtil (G.G IPursell. ndigeini:inion programlls

Table ISome indicators of foreign influence in the Ivory Coast.

Labior

(a) Fstiinatcd expatriate labor force 119 72 )a 17?000)(b) Expatriate wage bill,total industrial sector wage bill 19 701)b 38.3(c) Expatriate wage billfvalue added in a sample of 22 Til.Lifa.iir-

ing firms (1971)c 17 ?(d) Expatriate labor total modern sector implvymelii (including

government) (1971 )d d

(e) Expatriate managers total management labor force (19 7 1)C 76-8(f) Expatriate technicians total techinician labor force (19-1)1 74 5(g) 1- patrialtc supervisors total supervisory labor force (19711) 39 (O(h) Expatriate skilled office workers total skilled office labor force 1531

(1971)Capital

(a) Percentage foreign ownership of 10( largest firms (1970)1 838Aitd

(a) Total foreign aid for current expenditures on goods and services(1972'1) St IS 41 million

(b) Of whiich technical assistance personnelg $1.5T 24 millionlForeign extlchtange

(a) Repatriated savings ofexpatriates (19 721)h STS 75 million(b) Repatriated profits from foreign direct investment l1972)" 5tIS 42 million(cl Repatiiated ...i iig-, and profits, total exports t197')h 1N.7°;

'Estimated using the 19701 quantity (15,980)1 and assuming a .()( per year increase in 1971 72.This value of 51)0 corresponds to the estimate given in (Cacheux and ( ii Coloegices (1973. pp. 6162).

"SETFF (1973. annex table A 3(1).'Sample firm level data collected by the aulhor, [Monson and Pursell (1975)].dEstimated modern sector employment taken from data in R6publique de ('6te dIvoire 11971.

1973).'R6publique de C6te d'Ivoire (1973), 3e partie, 'Tableaux Statistiques'.ISFTFF (1973, p. 18).WRepublique de C(te d'lvoire (1974. pp. 15 20, tables VII and X).

'biid., tables VI and IX.

for expatriate replacement is evident given the data of table 1. In the early1970s,expatriatlescomnplrisedeiglht and one-lhailfpercentoftlhe node-n sectol laborforce, occuIpied seventy percncit ol inanaoerial and technical positioils .1incOllected more than one-thir(l of the wage bill.

This large expatrilte presence is the result of a consciotis policy aimedt.] atoverconing skilled Lbor (deficicncies at the timle Of inlldependence. In 1961,the Ivory Coast ncitlher- possessed a utniversity nor exlcnsive sccoundary andvocational eduicationail facilities. Froml an Iv oria n age 15 24 cohort of albout700,000 persons, thici-e w-ere only 11,000 scconlary schiool students and 585uni\ersity Sttdents (studyini abroad). Only 270 studClentS g.x.1(ituated I1loiomsecondary schiool thlat year an1d less than 2,000 coimpjleted secondary schloolin the ten previous years.'" In view of tlhese educationail d el'iciencies, the

'Republique de France (1970. vol. 1).

T).D, Alt sooll and G(i.G. I',ll . II ldiZ I I,, IIi,:i: l I II IQ e,rIM, 129

I\orv C(oast cholse to rely tiponi skilled foreign labor wlilC simllll1taneouslyicreUsinlg edUCIlatIOll CX\pCed it il lrs to train I\orians to replace the imuportcd

foreign workers.'"

Replacentcrit of the skilled nion-African labo(r force, :11rCald begLun in Some1COCCUpaltion1S, Will accelertCe in the 1 98,(l as larger viiiminbihs of ivoria ns are

educated. Of the fouir OctLIJ%Ltiollns anial% ied hiere, somiie replacemevit hasoccurred at the two low(ver levels. 1loxsesr, there iS co1siderable scope forreplLcemnenit in the naiua,gerial and technical levels. Thlere \xaS n1o azippreciablechange in the percentage representc;ation of expatriates in these occupitionsdLuring the l)9ls and earl' 1970s, delspite a rapidl e\pavi-iomi in the totalniLumihber of pos,itions'-, a1id elre 1. ha bel b lerong demand for, aIId nlounemployment of, 1 lriazms with the rcqtired edticatimiill *illalficationis.

3.2. 'CLtJ:ihi la l andltl (1CClp[uittiuivuI J(t'quircintwlN

Ihorian iintioials, to replaLce expatriate labor are trained in ain Cd iLIctaiolnal

s',\stem patterned after that of Franice. There is a six-grade prilmary progranmfollowed by a sexci-grade secondzrar program consisting of separate four-grade rL'mn ihr cvcle) I and three-grade' egiviments (denlviWmc crte I. The length

of post-,ecotidared CLLICat0io1 varies: thie miost coininmi are t\xo-vear cvcles aitlecliolmto()eic,l inistitiute anid four-ear pro-'amsil at the N:tliovial U iii%rsitv.

In order to use D)RC anall is to alalxNiC these e(ducationllal programs, theremuist exist a fairlv hliglh correlation hel%cevn educational and occupaittionallevels. T his appears to be the case in the l\ or' Coast, whlere the labormarket is characteri/ed by a form Of educatl1ional screenini1g or Job ration-ing." Occupational pl-acemnent in -ox er n men t eimpiloment is formall\ con-tiogeit upon tlle possesioll of alpprt pria1te edlulctionai'l credentials. In therix;lte' sector, one obser'es a lesser, butt still -,ig1ilFic.;llt , relationship betweencii

octupa;lions anid edLIca1tiOlnal le].tes.

In the table below, we uiVe t%x0o alItL.vitlixe stof occua;1tion1 educatiollequiiialecrcies. H1\ pothesis one is tlle generall relationship cturrently llsed byIxorian planners to control entrv and to guiiide ,,tudents along edticalionalpaths dictaLte(d by nallnposser demiand projectiotns ' p1pthesis two is aslightly upgraded r:x.sion that probably better indicates, increased e(ducationalrCeLqUirem-ients likely to accompamn' ihnprmxced teChniM0logv. We take theserelationships very strictly and assumec that no lorim e i can be employed in anOCCUpation tlniess he has the proper educatitnal crcdentiatl.

"'Ivorian education expenditures rose fr(om 3.9 to 5.3 percent of ( NtP between I')( iiand i1970rie\ now comprise tine-third of the mo einmenis current hudget. Fducational investmentsqleniltitime is about seven percent of the capital budzet Ftiriii aid, capital anud current, is

about i%%eit\ percent of toital educational expenditure. Republiqtiue de ()te diloire, /linkar61;ilI'.l (le 1, ml I i.ll,fni(ill'. various years.

'-St I 11 1 1973. pp. 81 h4)jThe job-rationing mnodel is oullined in (detail in I lhuros and Iucas 1'21,.

"'Ministdre du Plan (1969), passirn.

130 T.D. Nlonnts anId G.G. Pursell, Ind1lige1nizit iont prograins

Hypothesis 1 Hypothesis 2

Management University degree University degreeTechnicians Secondary diploma Two years post-secondarySupervisors Six years secondary Secondary diplomaSkilled office workers Four yeairs secondary Four years sconmdarv

Data to verify these relationships are sparse. The 1971 private sectoi laborforce survey,2 t ' indicates that 37 percent of skilled office workers had fromone to four years of secondar-y C(eduCatio, 60 percent of supev-visors had fourto seven years of secondary ecaLczitioIn and 56 percent of tcchnicians, and 51percent of imana mei-ent had at least comiiplete(d secondary school.-' GieCllthat this survey covered small and large enterprises and that the educationl-nidata were n(ot broken down by nationality, it is pro-,bably true thiatexpatriates employed in larger firms possess the educational credentialls-ueeested in one of the hypotheses outlined ahboe.

We make an additional assumnptionl concerlnilng thesC CLuLiaLIencies. n1a11el1that there is no sUbstitultioll amon011g o0CC1l pati0in. ThLs, for exanple, anexpatriate engineer with a university degree cannot be replaccd by two (ormore) nationals with secontdary school diplomas. We believe this sti troigassumption to be realistic for management, techlniicianis, anld supervisorsgiven the nature of the qLullificaltionss required for thc highly skilled occul-pations in which expatriates are employed. However, it may be somewhatless realistic for skilled office workers. 22

3.3. Expatrialte ut'ialae'n.s

The etluivalency ratio, R, measures the number of Ivorians required toreplace one expatriate. It was calculated by first estimating time streams ofincome during ain Ivorian's wvoirkine lifetime, then by comparing thesestreams to the cutrmulatcd wvages paid expatriates in the same time period.Regression techniques were applied to data relating average yearly wages to

-N`Iniii%rec du Plan (1973).''odaIl educational levels for each occupation were: managctment - university (32 percent),

technicians univerJity 138 percent). supervisors four years secondary t35 pciciLl. andoffike labor primary (38 percent).

22 An additional implication of the strict occupation ediucation corrcspondence is ht ili theediucationial level allaincd determines a person's oCLUp.lmi0n catcuorN over his lifetime. lherc isno occupational 1nohlliL). Of course this inmplicatikn is unreatistic. Promotions betweenoccupations will occur as mn-die-jolb lcarnipii takes place or as cnterprises provide ti\rtlhertraining. Unfortunately. data on upwvard occup:niunal mlhility were not a' ailablc to rcfinc our.nalNsis further.

T.D. Monson and1l G.G. Pursell, Indigenization prograus 1

length of service in the enterprise to estimate eq. (5).3 Table 2 reports theestimated income stream equations and eCILlivaicncy ratios uind(ler bothoccupation--education hypotheses.

W,= W,,+,ft or ln V',,,= lIn Wm, + + xlnt. (5)

For various reasons,2 4 we do not place much conlrfidence in the accur-acy ofthese estimates. We therefore checked the sensitivity of the estimated I)R(coefficients to variations in R by calculating a hypothetical eqtuivalency ratiowhich, when inserted into eq. (4), would equate the DRC coefficient to unllitat a discount rate of eleven percent. Except for office labor, the hypotheticalR was at least seventy-five percent greater than our estimated R. The a\vcrac1edifference was 136 percent. These results suggest that our results will not bealtered significantly even if we severely underestimated the equivalency ratio.

3.4. Other elemenits oj the DRC coefficients

3.4.1. Direct educational costs

Job screening via educationai credentials and the hiigh failure rates2 5 founidin the Ivorian educational system complicated the estimation of directeduicationial costs. As noted above, we assume a strict corres.pond(encebetween educational and occupational levels, meaning that stidelnts lhad tocomplete a discrete unit of additionial education in order to be eligible toenter the next higher occupation.2 6 Consequently, except for failures (urin,gthe first four years of secondary school, the costs of training students whofail are assigned to the preceding educational level. This was done by usillnidata on failure and drop-out probabilities. From Ivorian budgetary dlata,education costs for each level were in turn decomaposed into foreign cxchange(FX,), domestic resource (C,), and tax elements. Omitting the tax elementswe thus arrive at an estimate of the discounted foreign exchange anddomestic resource education costs per successful student for each occu-pational level.2

2 3 Data used to estimate income streams were found in Ministore du Plan (1973, sol. 11, pp.135 and 162).

2'Nainely, limited degrees ot freedom, data reflecting experience only in the lorm surseNed.and larger actual wage differentials than implied by our estimates.

2 'About twenty percent of secondary school entrani, suecessfully complete their secondaryeducation in an average period of nine years. About forty percent of uiniiersity entrants

eeor1lly' complete their education.2"'Thus, for simpfliciy, we assume that failing sidcidents learn nothing to infltuence hliei future

productivity while unsuccessfully attemptilig further edueationi.2' ) 'ajjk on the procedures followed and the data used to estimate these and other elemenlts

of the l)RC coefFicients are found in Monson and Pursell (197t6, ann. 13 D). All data are for theyears 1970 72.

toJ

Table 2Elements of the equivalency ratio estimates.

Income streams (FCFA thouisands)(1) Management W,=2132.7t°-0 461 r2 =Q.724, t=2.808

(2) Technicians W,= 1863.5t 0 0 6 2 3 r2 =0.531, t=2.128

(3) Supervisors: Hypothesis I W1 = 1390.6r06550Hypothesis 2 W,= 1304.7t 0 5 6 -3

(4) Office workers WI =444.9t0- 4 0 3 r2 =0.594, t=2.422

Equivalency ratios

Timerequired to Ivorian Expatriatereach mean total income' incomeb Equi%alencyexpatriate (FCFA millions) (FCFA millions) ratiosincome HH H, H1 H, Hx H,

(1) Management 5.81 80.735 80.445 83.259 82.969 1.031 1.031(2) Technicians 19.43 75.148 68.839 78.362 72.054 1.043 1.047(3) Supervisors never 58.374 50.176 66.313 63.602 1.136 1.267(4) Office workers never 32.813 2.Isl'3 45.322 45.322 1.381 1.381

'From evaluation of J I W. + tldt, where it is the 1vorian's %%orking lifetime with the exception that the maximum yearlyincome received is no larger than the average expatriate income. After that time, expatriate and Ivorian incomes arc equal. Thetime period at which incomes equalize is given in the first column.

'Average expatriate yearly income mulliplied by the Ivorian's %kil:ilng lifetime. These a%erages are: management FCFA2.900,000; technicians FCFA 2,336,388: supervisors FCFA 1,909.388X office workers FCFA 1,221,300.

T.D. Manson and G.G. Pursell, Indigenization pi-ogranis 1 33

Fooreign educational aid presenlted anotlher problem. Niniety percent or thesecontdary3 school staff are cxIpatriates wlho are partially paid by dt n1orcountries. Similarly, expatriate salaries, financed partially by Ivorian andforeign resoLrces, accoLut for oie-lhalf of university ecl-Lucational costs.Foreign aid constitutes abo(Ut twenty percenit of total -ccondarN C(LduCaitional

expenditures and fiftF percenlt of university expendiltures Our estimatestherefore, dclpenid uipon the extent to which these foreigni resoLurces financemarginial increments in ed ucaitional expendiitulres. Accordingly, we mi adeseparatle calculatlions of educational costs, first assuming the colln in at11.m oftihe presenit pattern of aid and theni assuming that all costs are borne by theIvory C'oast.

Table 3,summarizes the decomiposition ofr edclaCtional costs as well as thedeconllposition of cxp arit ate inicome.

3.4-'. Inlc01o)iL dlirerted'C fif0))l Cxpatriate's to IroriansThe benefits from Ixori/ation consist Of inIConI.c prex ioulsk paid to the

expatriate and now diverted to Ivorians. These benefits consist of salariesdlirecClO rceCixedL in the I\orv Coast and indirect payiments in kind thtim.transportation, etc.). To deconmpose these benefits inito their foreign exchange.domestic resource anid tax elenent, ,we .v Uhtrlacted Cetim1a.ted rep; arl atedinicome trnaifeirs (26 percenit) 28 fr-om average expatriate inicomlie, thieni de-dLictedi incoime taxes and allocactd the r-eaindr(c to (domlestic resoUrce.,foreinien exclhatnge and indirect taxes follow i ug a\xailable mairket basket data.'*P1\ illnents in kinid were e!hlim11aeldL from sample data for 469 expatriateseniplo\cd in ltxxelnt-two manufacturing firms.3.

Table 3 summanirizes our calculations. Note that pa mients in kind are qLuitelarge for the first three ocCupations. For office labor, tlhey are snmller sincemost expatriates in this category are women receivilng transportation and

housinu benefits through the emnplo%xnent of tlheir Ii usha uds.

3.5. 77lwe DRC estillittLesEachi of our measuLres are calculated at three different discoLunt rates 5, 11

anid 17 lprlcenlt althoughi we believe the central value of 1I percent to bemost plausible.3 I The results of these Ca]lclakItions are given in table 4. For

Pl.nniniiiig Ministry projeet files use this percentage. Ilousexer, :his salue may be anundierstatentelt. In 1972. the aNerage :ep:lriiriaed transfer pei expatriate enployee was about onemillion T'TA or aboult one-tliird of the axerage x%aye paid managemlent, the miost kliledoccupation cornsidereid here [ReptubliqLue de (';te d'lxoiric 11974. tahle IXI]

"'Association Interprofessionnelle des Emploveuirs de la ('6te d'txoire (19731."'These I rni were included in the aihiliors' wider sample of sory Coast manufacturing lii ins

IPtirsell and Motnson U1'S il Transportation and retirement beinefits "ere considered to hectircl. foreign exchange cv,ts, I loihilig costs V.ere decomposed following arorli iation co-CI'ILcci1i used fr., edtcational capital expenditures.

1This rate is the central salue of an es,timiate oi' a shadto dliseouint rate in the Ixorv Coastliaseed tiponi 1M71 data [Pu1i.ell 11975%. pp. 53 5711

4.)

Table 3

Decomposition of educational costs (upper part of the table) and expatriate income (lower part) into foreign exchange and domestic -resource costs.

Percentage of total

Total costs per Domestic Foreignstudent year' Aid' resources exchange Taxes-

(a) Secondary 219 41 48 38 15(b) Unikcrbit; 894 459 60 28 12

Annual income' PcrrccnwLae of total

Income Domestic FoireignSalary in kinid Tfotal resources exchange Taxes"

(11 NManagenment 2900 2-s5648 32 54 14(2) Technicians 2336 YI)5046 36 54 10(.3) Superv,isors 1909 2681 4590 36 54 10(41 Office labor 1221 83 1304 19 6120

4 FCFA 1000s. In 1972. the exchange rate was aipproxirnately FCFA 250 SUIS 1.'Income taxes and indirect taxes of goods and services.

T.D. Monson ntid G.G. Pursell, Indigenizatrin progratmts 135

each occupation, twclve estimates are made-for each discount rate (5, 11,17 percent), for each assumption of aid continuation (continuation of thepresent pattern or completely Ivorian financed), and for each occuLpaltioneducation equivalency (the current pattern and the up-graded version).

As noted earlier, the negative coefficients show'n in table 4 are the restult ofnegative domestic resouLrce costs in the numera )r, i.e., the total disCouLnlteddomestic resource costs of training (C,+A,+E,) are less than the discouLnteddomestic resource inicome benefits (D,) diverted from expatriates to Ivoriians.

Table 4Domestic resource cost coefficients of indigenization efforts in the I'ory C'oast, varzolts discout

rates.

OcCUpatiotnal

educationalOccupation hypothesis Aid 5 Il I, 17",

Office labor H, No 0.322 0.762 1.589Yes 0.306 0.679 J.'(I

H2 No 0.385 0.896 1848Yes 0.321 0.790 1.4-F

Supervisors H, No -0(.477 -0 332 -u m1.\

Yes 0 469 0.2445 ( N 'No - 1.40S -- ().1768 (269Yes -0).395 -0.163 0.23)

Technilicians H, No 0.382 (0.18I 0.157Yes -0.370 -0.169 (.161

H, No -0.397 -0.127 0.494Yes - 0.383 -0.116 0.405

Managers H, No - O.27h6 0.158 1.326Yes --0.264 (0.139 1.(02

H2 No 0.261 0.I80 1.38YYes -. 248 0.157 (.99()

4. Implications for Ivorian education policy

4.1. Edilcutioin fior e.VputHiat&L replactt'mL'nt: An1 efficient iniport subh.titu ribipolicw ?

In 111osl case the estirnates stuggest that traiinigi for piirposes of expai-liatereplacement is a highly desirable activity. For supcrvisors and technicians.the DRC coefficients are negative at discount rates of five and eleven pciccnt.Even at discount rate of seventeen percent, the DRCs for these twoocCupationis are considerab)ly less than one. For office labor and mlallnage-ment training, the coefficients are acceptable except at the sevenlleell PCercenidiscount rate. For managerncnt, high training costs and the long edLucatiolnalperiod combine to give coefficienits less satisfactory than those for supervisors

136 T.D. N1olnson candt (i.(. Plrt'sell, Ind1ige'71izatiotn pr JQ'1

and technicians. As the dliscotunit rate inierealses, there is a rapid decrease indiverted income benefits entering the numILIltolr and denominator. For officelabor, the higlh DRCs are due to the aLSSUIllption that failures in the first fortyears of secondary school are incapable of replicing cxpatriates (tthc)c do ni)tacquire the minimum level of educationi of expaltriates). Sinice failure rates arehigh, costs per successful student are also hiigh.

The continuation of aid in its presenit pattern pro'ides accept;able D)R(\sfor all occupational training except office labor. As expected, aid conI-till onI,iLii hlas its nmost nloticeable frfect in those occupationis rCeillnluIniversity tr-ainiing (techniiic n;;n anid nmanagement). Aid to higher cdtica tioncovers appIro0ximIIaZtely fifty percenit of diiect traiiiing costs.

Since most of the DRC coerficientis in table 2 are less than One, we caIIconclude that past and future resource aillocation to seconIdar\ and( unkicrit\6ed uCatiOnl in the Ivory Coast hlas been and will renmain economicallyjLutifiable while the expatriate participation in the labor force rcminaiw high.The fact that thle shadow e\cllange rate almost certainily exceeds tlle officialrate makes this Conclusionio even more con'\ incing. Ho\\e \ er-, as enilia;I[i1CL1earlier, it would be desir aible to sipplement our anal, i.N wNith a dynamicmodel in order to discuss long-termn issues of edLuLcatiolnal prolicL \

Having calculatedc DRCs of traininge for expatriate !plahcelIlleil , it isvaluable to proceed onie step fturtlher and comllirlle these cStimliat.es to thOse oiother foreign exclhange generating actik ities in the Ivorian ecollnlm . In avery approximate maniniier, we cani use this comparkion to deteriine iie letherreso'irce allocationi at the margin is best directed toward the edicational,agricultural, or industrial sectors. We are in a position to make suchli acomparison using prelimC1inaIU-V re9ilith of research in progress at the Wmld.Bank's Dc'elopnment Research Center.

Dirck Stryker (1975) has alcuIlaLted DRCs foir Ithe agiictiltlu ral seCtor ISIinga measure similar to ours. His estimates for the southllernl ionie, the mostprosperous agricultural legion of the I\or! Coast, ranged fiom 0.48 to 1.29with the majority centered aro1u0.nd a mean of 0.73. Coffee and cocoa, theIvory Coast's two largest agriCletuIrl;l exports hiad the lowest values (betweenl0.40 and 0.67 depending upon the mlethlods of prodctitioi tused). In thecenitral region. the coerficients were sliglhtly ahol e olne for two crops anidbelow onie for cottoIn. In the northern region, DRCs for mnoit productsi icwrclose to unity.

Our DRCs ca1lculated at ani eleven percent rate of discouLnt fall in therange for agriCuItLtual products. DRCs for suLperVisorls and technlicialns areappreciably lower thaan the two lO%Vest values of the DRC coefficients forIvorian11 aglriculture- (coffee and cocoa). 'Therefore, we may conclude thatmarginal educational expenditure for expatriate replacement ranks approx-ilnmately the same or slightly better than agricultural aIctivities in theirforeign exchange generating or saving capabilities.

7.1). A! onv)n ll 1 (;.(i. 1 1-It'll, Indigt-11ig-t ion pr-grants 1 3 ?

The autiots have estinlted D)RCs fol the maIInufacturilng sector. 2 Theresults of tihese calculatiois ilnicatC, that edUcation for ;xpat laiite replace-ment is a more efficient actixity thlan 1 most 11an1lf'-LtLacting.1 alctixities. F'or asample of 83 manfZact1ring1i firms tlhe xN%ihtedL a'Eellra DRC was 1.33. Nineof thle 83 firimis liad negative foreign exchaiige c:rineaildS txdclve hadcoefficielnts ill xcess Of 3.0.

Ouir education DRCs are clefiniiel\ sklpri . to the average ol tileilndustrial sector although some inidustrial acti\xitics compare favorably to ourestimllates. Nonletieless, we canl generallv stalte that iarginail c\lelidtilreLupoIIn cdLneatloll is a better al!oaca lion of lxvorian resources than11 uIpon

iduistrv. Consequently. eld icalioni for icx parititc Teplaccci ilit a ipeN Lo bean efficienit import sbstitiltionl actixity.

4.2. .4Allocatioii of resFl)ir'cNs wtitliji ilk' CiethLctiofliall Sir lic tIC

Vicwing the DRC estimates for eachl ocCLcpalion,1 onc is immediateix struCkby the negative DRC coefficient- and low cost benefit ratios for thleoccuipations of supervisor anid techticiani. The ncgatixe DRCs indliicale thatthe training costs plus alternatitxc earnings. (i + , , t- I, are less than thedomestic resources cOnUmmlcd by the \naitriates to be replaced. They imnplthat edLicational rc,ouivccs are best allo,ated to tipper secolidary lexels in thel ory 'oast. UnlliVersitytc iCaLtioni at least for management trainiing hasDRC coefficients less thani one at lowetr discotUnlt rates but tie coefrficienits areniot nearly as fax orable as those csltimated fOr- Sluplcrx\ isois and teclicinni,.

Office labor training is marginallk acceptable at the current excnliiige rateand at discount rates loxxer than se'venteen percent. It is a marginial activityat best v-heni the occupalitioni ednteatiin relationishiip is upgraidc(i (hvpotlhesis2).

The allocation of Ivorian edticational fimiaicinig in the 1960s andi eandy1970s reflects an Ivorian estimation of costs and beneFits whichi closelycoirresponrds to our estimated DRCs. Clearly, oturi estimates inidicate thatresotirces slhtould be clhanneled to secondary schlools, rather thanl to theuniversity. In fact, mnost 1xorian rCsotirces are directed toward the primarsand secondairy levels. For 1970, scoindary schools rcccixed three andi onle-lhalf times more Ivoriarn ftunding thain the university. However, F'rance andothier donor countries have a different conCeptioin of edluca,itioall :.t irs anildhave lixdi(le aid evenly hetween the university aned ollthe forms of ediulcation.

4.3. Pr.iv .ct atld iocial returns It) toelucat U!io

As a crossclieck on otir DR( results, we have also calculaMtLI social Costbenefit ratios and soczial internial rates Of retLurn, uising the same (liscounti

8'Pursell and Monson t 1)7i).

13T 1.D. AlMooson, 11 (;.(;. Purs.ll, Inidigen-iizattion, pr ogerril.

rates for the cost- benefit calculation, and assunimine ratios between theshadow and official exchange rates of 1.0), 1.15 and 1.3 (.33 As would heexpected, these results correspond quite closely to the DRC results reportedabove. We also allowed for the fact that the structure Of eduIc-atiolal finanlcein the Ivory Coast is such that indidiuatsls bear little, ir any, of the directtraining cost-, C, and FXN (Coiis equen fly, private coSt benefit ratios are aitleast fiftv percent lower than social cost benefit ratios. These dliffe-encc-suggest that a case can be made for reluirinug individuals enrolled in alllevels of education, but es-pecially thiose in upper secondary and universitvprograms, to reimburse the state for a portion of direct educational costs.This conclusion is cpecialh true at the university level Wllee stUdenlts nowonly pa) modest direct costs tfor subsidized food and housing facilitiesi, andmay receive sizeable scholarships (eCLUi\alentC1 to USS164 monthly in l975l.34

5. Summarv

In this paper, we have applied DRC' aniiah.is in a novel fashion to ck;altIale

educational programs for indigeni/atiui puirposes. Subject to ouir caNeatregarding its marginal iatuLre, this treatment cotuld he applied to a widerange of LDCs which: utilize imported Skilled labor. It coimnpl ente eC\itillDRC studies of other economnic actikities as well asr more coi cntiolml

ppr-oclhCes to tlle anl sis of ed L1at ion1l costs anid hciicfits.For the Ivorv Coast. our results confirm that resoLur ce allocation to

education and, in particul[ar, to upper secondary CeCUCt tion is Walrrl aeldLI,Lower secondary education is useful in so far as it Performns a CondUit

function for higher levels of training. The importance of unkei\si\ eduLioni[i

will probably increase as the occuLpa;lltionaZ1l edL1C ctiO1il r c is upgiralded

through technological development. Finally, come empirical support is givento the argLumCent that a system of tuition charges slhouil(d be implelmienited inorder to redutce the disparity between social and private returnis to education.

'Itmnorinu the discount factor, the social cot.t benefit ratio is detined as:

R(s. (tC,+E,t+ + ±eZFx1 )

SCBT,

( Dr -t ( iS, -+ M\1g) )m1 "i } sI

The notation is the same as that of section 2 above with the exceptionl that represclits the ratiobetween the shadow an(d official exchange rate. The private coist benefit ratio 1, obtained byremoving the variables e, C', and FX, frrom SCBT, and adding an element 7 to the denonatorrepreseriting the indirect tax component of ilic ieplaced expairiaie's income.

Social cost benefit ratios were always less than one for supervisors and tectinicianis at alldiscount rates. For office labor and managemeni, they were less than one for interest rates underseventeen percent, All private cost benielit ratios were less than one.

V4 \'ariou, loan programs would need to be implemclliete in order to oxcrcome capital marketimperfections and to ensure the success of such a proposal.

T.D. Nl onsotn and G,G. Pursell, lndigenizaion p1r0g1at11S 13t)

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