1 chapter 8 lecture - human capital: education and health in economic development ec348 development...

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Chapter 8 Lecture - Human Capital: Education and

Health in Economic Development

EC348 Development Economics

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If you don’t have money today, your disease will take you to your grave. — An old woman from Ghana

The children keep playing in the sewage. — Sacadura Cabral, Brazil

In the hospitals, they don’t provide good care to the indigenous people like they ought to; because of their illiteracy they treat them badly. . . . They give us other medicines that are not for the health problem you have. — A young man from La Calera, Ecuador

The school was OK, but now it is in shambles; there are no teachers for weeks. . . . There is no safety and no hygiene. — Vila Junqueira, Brazil

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Education and Health as Joint Investments for Development

Health and education are important objectives of development

Health and education are also important components of growth and development Why?

These are investments in the same individual

Greater education capital may improve the returns to investments in health

Public health programs need knowledge learned in schoolBasic hygiene and sanitation may be taught in schoolEducation needed in training of health personnel

Greater health capital may improve the returns to investments in education

Health is a factor in school attendanceHealthier students learn more effectivelyA longer life raises the rate of return to educationHealthier people have lower depreciation of education capital

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Improving Health and Education: Why Increasing Incomes Is Not Sufficient

Increases in income often do not lead to substantial increases in investment in children’s education and health

But better educated mothers tend to have healthier children at any income level

Significant market failures in education and health require policy action

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Education as an Investment

Economics looks at education as an investment that generates higher future earningsMore educated people are more productive and earn higher wagesWhy? Education means more general and technical knowledge, more specialization division of labor

Adam Smith opens the Wealth of Nations (1776) by stating that: “The greatest improvement in the productive powers of labor, and the greater part of the skill, dexterity, and judgment with which it is anywhere directly applied, seem to have been the effects of the division of labor.”

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Table 8.1 Sample Rates of Return to Investment in Education by Level of Education, Country, Type, and Region

The social internal rate of return refers to the costs and benefits to society of investment in education, which includes the opportunity cost of having people not participating in the production of output and the full cost of the provision of education rather than only the cost borne by the individual.

Private rate of return is the benefit to an individual from participation in higher education. Usually derived from the additional earnings which a graduate will accrue over a lifetime, with an allowance made for the costs they incur, including earnings foregone during their time in higher education

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Figure 8.2 Financial Trade-Offs in the Decision to Continue in School

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Investing in Education and Health: The Human Capital Approach

Initial investments in health or education lead to a stream of higher future income

The present discounted value of this stream of future income is compared to the costs of the investment

Private returns to education are high, and may be higher than social returns, especially at higher educational levels

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Education as an InvestmentIn this perspective, we say that education is a type of “human capital”

When individuals spend resources on themselves (or their children), and these expenditures improve their future economic opportunities, we say that they are investing in human capital

Examples of different types of human capital: health, formal schooling, technical training, professional training, informal learning

Can you think of any other?

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Back to Education as an InvestmentWhat determines the incentives of individuals to invest in education?

A large part of the investments in human capital take the form of time investments, and this will have important consequences

What are the costs and benefits?

Benefits: higher future earnings, which depend of the amount of investments undertaken and the amount of time over which the return to these investments will be enjoyed

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Education as an InvestmentCosts:

Direct costs (out of pocket): expenditures on tuition, books, transportation, other material, etc.Opportunity costs: foregone earnings, alternative investment of resources, etc

Foregone earnings: wages and income that could be earned during the time that was “spent” in education

Alternative investment of resources: how much income could be earned if resources invested in education was used elsewhere (give examples) So individuals are going to choose the optimal level of investment in education in order to maximize the net return to these investments (benefits – costs)

But note that both costs and benefits take place through time, so that we have to compare the present value of these two

How does this play out in developing countries?

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Child LaborChild labor is a widespread phenomenon

Need to look at why children are used as labor.

Wage rate of adult may not suffice.

Consequences

Obviously deprives kids of education

May also expose them to coercion

But unfortunately not so simple

May be the only way for the family to survive

May allow the family to “subsidize” one family member to get an education, and help the whole family the longer-run

May keep girls from being married off

May provide health care

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The Economic Pyramid (Sweatshops)

Sweatshop workers – gets perhaps 30 cent for this pair of shoes

Western companies and

retailers

Western consumers – pay up to $200 or more for brand new Nike shoes

‘Middlemen’ – subcontractors

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Children’s EducationChild labor: is related to the direct costs and the opportunity costs of children’s education; depending on the level of income of the family and available credit, it may actually be their best option

The question of credit access in this case becomes even more complicated: the optimal investment may not only require borrowing, but it may also ideally require parents to borrow in order to invest in the children, and pass the debt on to them (but that’s usually not allowed)

Also fundamental is the fact that investments during these earlier stages determine the productivity of all later educational investments: “if you have a bad background, it’s much more difficult to advance”

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Children’s InvestmentThere’s still another point in relation to investments in children’s human capital that must be considered:

If parents treat all their kids equally, the cost of providing a certain level of education to all of them will ultimately depend on the number of children: it’s much easier to pay for a good school for one child, than for five children

• called the quantity-quality trade-off

And the effects of an insufficient level of investment at this stage will be carried on throughout life, to lower educational attainment as an adult, lower productivity and wages in the job market, and, ultimately, poverty

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The Gender Gap: Discrimination in Education and Health

Young females receive less education than young males in nearly every low and lower-middle income developing country Closing the educational gender gap is important because:

The social rate of return on women’s education is higher than that of men in developing countriesEducation for women increases productivity, lowers fertilityEducated mothers have a multiplier impact on future generationsEducation can break the vicious cycle of poverty and inadequate schooling for womenGood news: Millennium Development Goals on parity being approached, progress in every developing region

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The Gender Gap: Discrimination in Education and Health (cont’d)

Consequences of gender bias in health and education

Economic incentives and their cultural setting

“Missing Women” mystery in Asia

Increase in family income does not always lead to better health and education

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The Gender Gap

As mentioned before, young females receive less education than young males in nearly every LDC

Closing this educational gender gap is economically desirable

Thus, there is a need to look at gender bias in health and education

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What is Gender?Gender is the social construction of the biological differences

between men and women

Gender is not “Sex”

Gender is not “Women”

Gender is a focus on the unequal relations between men and women

Gender is learned, socially determined behaviour

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Gender MeasuresGender Poverty Ratio = no. of women per 100 men living below poverty linee.g. 130 women per 100 men lived below the

poverty line in Bangladesh during the 1990’s (UNFPA, 2002)

Gender Development Index (GDI) adjusts HDI to account for inequality in achievement between men and women

Poverty Statistics & Measurement – Looking at Gender

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Human Development Index (HDI)

Gender-Related Development Index (GDI)

Gender Empowerment

Measure (GEM)

Measures average achievement of a country in basic human capabilities. The HDI indicates whether people lead a long and healthy life, are educated and knowledgeable and enjoy a decent standard of living.

Measures achievement in the same basic capabilities as the HDI does, but does take note of inequality in achievement between women and men. The GDI is simply the HDI adjusted downwards for gender inequality.

Examines whether women and men are able to actively participate in economic and political life and take part in decision-making. GEM is concerned with how others take advantage of the opportunities in life.

http://hdr.undp.org/en/content/gender-development-index-female-male-ratio-hdi

http://hdr.undp.org/en/content/gender-inequality-index

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“Everywhere I have been it is so clear that if you do not deal with the

questions of women’s education, of women’s opportunity and women’s

rights, you simply cannot have effective development”

World Bank President, James Wolfensohn

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Skill Development among females is often hindered due to a lack of:

Opportunity – access to training programs in farming skills, crop production and general services

Technology – access and exposure to new methods is limited due to educational disparity

Aspects of Gender Poverty: Education

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Literacy, particularly the literacy of

women, is the most important factor for

sustainable and equitable

development

Hans d’Orville,   Director Bureau of Strategic Planning UNESCO

www.unescap.org/jecf/p07women.htm

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Is Illiteracy a Female Phenomena ?

Cultural and social factorsCultural and social factors have a major impact have a major impact on female access to schoolingon female access to schooling

This is compounded by This is compounded by povertypoverty, which is the , which is the critical barrier to education, in particular for critical barrier to education, in particular for girlsgirls

A Look at Some Data

http://portal.unesco.org/education/en/ev.php-URL_ID=43352&URL_DO=DO_TOPIC&URL_SECTION=201.html

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Girls in many countries are expected to begin helping out at an early age with household responsibilities which prevents them from attending formal schooling Investing in girls and women education is not considered profitable by many poor communities In many patriarchal societies women and girls are denied their fundamental human rights, among them, the right to education In some countries, empowering women through education is not considered essential and sometimes contrary to the role that they are expected to perform

Is Illiteracy a Female Phenomena ?Women’s illiteracy is due to Women’s illiteracy is due to

many related factorsmany related factors

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Figure 8.4 Youth Literacy Rate, 2008

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Poor people are often more sick than the better off with less resistance to disease and less access to food & clean water

Poor women have less access to medical and reproductive health services

Often this leads to higher birth rates among the poor Increased burden for survival

Aspects of Gender Poverty: Health

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In the Workplace:Women in many countries work longer hours than men – e.g. in the Indian Himalayas, a bull works 1064 hrs, a man 1212 hrs and a woman 3485 hrs!Women occupy lower positions and get lower wages At least half of women’s total work time is spent on unpaid jobs

Invisibility of unpaid work leads to lower social entitlements as compared to men

Women have extensive workloads with dual responsibilities – farm & household

Aspects of Gender Poverty: Discrimination

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Representation:There is great gender inequality in social, economic & political representation

Women’s voices are seldom heard in debates on financing and policy development

perpetuates gender gap in accessing needed resources such as education, health, physical capital

Aspects of Gender Poverty: Discrimination

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Aspects of Gender Poverty: Discrimination

Source: http://www.worldbank.org/gender/prr/engendersummary.pdf

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Power Relationships:In the home…

• Men typically hold greater “power” given the “breadwinner” title – control of finances

• Physical power often deprives women the ability to refuse sexual practices

In society…• Women may not only be discriminated on the basis of

gender, but are also further subject to inequality from ethnicity, religion or class.

Asset Allocation:Physical – access to land & infrastructureFinancial – access to credit & savingsSocial – access to networks

Aspects of Gender Poverty: Discrimination

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FAMILYRESOURCES

ECONOMIC AND SOCIALRESOURCES

POLITICALRESOURCES

INFORMATIONAND

EDUCATIONTIME

ACCESS TO AND CONTROL OVER

POWER AND DECISION-MAKING

Gender, interacting with other variables defines:

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Specific measures to narrow gender gaps:Equal rights to land & property

Equal contribution to designing infrastructure & services such as water, transportation, education, health

Eliminating gender bias in the workplace

Increasing women’s participation in politics

Future Steps…

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BenefitsImproving gender inequality can reduce poverty and reap significant rewards:

1. Falling infant & child mortality

2. Improved nutrition & health standards

3. Increased visibility & lower corruption

4. Faster economic growth

Future Steps…

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Figure 8.5 Female-Male Ratios in Total Population in Selected Communities

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Educational Systems and Development (Major Issues)

Educational supply and demand: the relationship between employment opportunities and educational demandsSocial versus private benefits and costsDistribution of educationEducation, inequality, and povertyEducation, internal migration, and the brain drain

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Figure 8.6 Private versus Social Benefits and Costs of Education: An Illustration

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Figure 8.8 Gini Coefficients for Education in 85 Countries

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Health and Development

Health, even more than education, can be considered a consumption good on itself

Better health allows each year of life to be enjoyed more individual welfare is higher when health is better

In addition, better health increases the length of life itself, and people like to live longer lives

So better health, on itself, increases welfare

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Health as an Investment

But apart from the direct welfare impacts of changes in health and life expectancy, there are also the indirect effects (causal relation between health and development)

As in the case of education, we can also think about health as a form of human capital, in which individuals can invest

In reality, health consists of component that individuals cannot control (due to genetics, available technology, etc), and a component that individuals can, at least to some extent, control (via habits, medicines, visits to the doctor, etc)

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Health as an InvestmentInvestments in children’s health

As in the case of education, children’s health may be of fundamental importance because it may determine the performance later on in life

Severe malnutrition during childhood cannot be compensated later on reduces health throughout life and limits the learning ability reduces the incentives and the ability of the child to acquire education tends to reproduce poverty

Also, access to credit may be an important issue: parents may want to borrow in order to invest in children’s health, what would increase children’s future earnings, and make it possible for the debt to be paid (with the higher wages)

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Health and Education as Investments – Some Key Points

Education, health, and income tend to reinforce each other, multiplying the effects of any initial change

Quantity (number) of children increases the cost of quality (education/health) of children, and vice-versa there’s a quantity-quality trade-off in terms of investments in children

Investments in children are key: they determine the “base” over which later investments can be “built;” insufficient investments in the earlier stages greatly limit the possibility of later improvements

Absence of access to credit may keep individuals “stuck” in a poverty situation, even when they’d be able to overcome it by investing in education and health (and, therefore, becoming more productive)

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ReducedInfant

Mortality

Birth spacing

Maternal Nutrition

Breastfeeding

Water

Sanitation

Household income

HIV Prevalence

Health Services

Birth Attendant

Immunizations

Use of services

Seeks treatment

Habitat

Social insurance

Addressing the Gaps: Health Policy

Immediate CausesIntermediate Determinants

GovernanceExpenditure TrackingAnti-corruptionPerformance IncentivesAccountability...

InfrastructureRural developmentSchools Health clinicsRoads

Policy Levers

Household Behavior& Community Norms

EducationGirl’s EducationMaternal EducationStipends...

HealthPublic-Private MixInvest in Provider CapacityTargeting to Low-income...

Mother’s Health

Treatment of Disease

Child Nutrition

Disease Prevention

Post-partum care

World Development Report (2004)

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ReducedInfant

Mortality

Birth spacing

Maternal Nutrition

Breastfeeding

Water

Sanitation

Household income

HIV Prevalence

Health Services

Birth Attendant

Immunizations

Use of services

Seeks treatment

Habitat

Social insurance

Addressing the Gaps: Education Policy

Immediate CausesIntermediate Determinants

GovernanceExpenditure TrackingAnti-corruptionPerformance IncentivesAccountability...

InfrastructureRural developmentSchools Health clinicsRoads

Policy Levers

Household Behavior& Community Norms

EducationGirl’s EducationMaternal EducationStipends...

HealthPublic-Private MixInvest in Provider CapacityTargeting to Low-income...

Mother’s Health

Treatment of Disease

Child Nutrition

Disease Prevention

Post-partum care

(World Development Report (2004)

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Health Systems and Development(Major Issues)

Measurement and distribution

Disease burden

Malaria and parasitic worms

HIV and AIDS

Health and Productivity

Health systems policy

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Each factor can be a cause, risk, and/or outcome Poverty, for example, increases the exposure and impact of HIV/AIDS Diseases such as tuberculosis can reemerges easily due to poverty circumstancesHIV/AIDS and tuberculosis increase poverty in the short to medium run by stripping assets Asset rundown leaves individuals, families, and communities more exposed to future health and nutrition shocks

Issues in Health

www.uni-tuebingen.de/uni/wwl/lecture3.ppt

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Health and NutritionCausation, Risks and Effects

Nutrition

Food Insecurity

Poverty

WorkCapacity

Health

Productivity

SchoolAchievement

Cognitiveability

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Figure 8.10 Under-5 Mortality Rates in Various World Regions

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Figure 8.12A Children’s Likelihood to Die in Selected Countries

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Figure 8.12B Proportion of Under-Five Children Who Are Underweight, by Household Wealth, around 2008

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Diseases in Poor CountriesHIV/AIDS http://unaids.org http://actionaids.org

Productivity loss: particularly in Africa

Malaria http://www.who.int/topics/malaria/enCountries with severe outbreaks have 1.3% lower average annual economic growth than other countries

Tuberculosis http://www.who.int/tb/en

Absent 3-4 months per year from workForfeiting 20 to 35 percent of annual household income

Malnutrition http://web.worldbank.org/WBSITE/EXTERNAL/NEWS/0,,contentMDK:20839585~pagePK:64257043~piPK:437376~theSitePK:4607,00.html

Over half of child mortality in low-income countries can be linked to malnutrition

Can you name others?

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Some Major Neglected Tropical Diseases

http://www.who.int/en

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Labor shortageAffects land use (crops, yields, livestock)

Knowledge lossLess intra-household learningLess schooling (drop-out, teacher mortality)

Loss of formal and informal institutional capacityImpacts on large-scale commercial agriculture (seasonal, migrant labor)

HIV/AIDS Impact on Agriculture

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HIV+ Child of HIV+ mother

Life and death TIME HIV- child of an HIV+ mother

Life and death

Age 0 Birth – found HIV+

2000 Age 0 Birth, HIV-

0-10 Dies 2000-2010 0-10 Grows, helps at home, cares for infected mother and father

2007-10 7-10 Parents die: placed as orphan with grandparent

2010-12 10-12 Grandparent dies; goes to uncle’s household

2012-50 12-50 Enters adolescence and adulthood – must avoid infection

2017-50 17-50 Sexual relationship(s) – may become infected. Has children

2020-2050 20-50 Helps children avoid infection, nurses those who are HIV+

2036-2070 36-70 Becomes a grandmother, cares for grandchildren when her own children die.

HIV Time Horizon

Source, Barnett, 2002

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Regional HIV and AIDS Statistics, a Decade of Bending the Curve, 2011 versus 2001

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Lifetime risk of AIDS death for 15-year-old boys, assuming unchanged or halved risk of becoming

infected with HIV, selected countries

Source: Zaba B, 2000 (unpublished data)

Current adult HIV prevalence rate

Burkina Faso

Cambodia

Côte d’Ivoire

Kenya

South AfricaZambia

Zimbabwe

Botswana

Burkina FasoCambodia

Côte d’Ivoire

Kenya

South AfricaZambia

Zimbabwe

Botswana

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

0% 5% 10% 15% 20% 25% 30% 35% 40%

Ris

k o

f d

yin

g o

f A

IDS

current level of risk maintained

risk halved over next 15 years

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AIDS Effects Within the Household- The Household- Livelihood Labor Economy

Source, Barnett, 2002

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Malaria - A Dangerous Disease• Causes more than 300 million acute illnesses per year

• Causes at least 1 million deaths per year

• 40% of the world’s population is at risk of Malaria

• Slows economical development of countries

0 0.2 0.4 0.6 0.8 1 1.2

Deaths caused by vector-borne diseases in 2000

Schisto-somiasis 50,000

Malaria 1.08M

Dengue Fever 12,000

Lymphatic Filariasis 0

MillionRBM/WHO

2001

http://www.malariasite.com

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Avian Influenza

• Viral diseaseHighly infectious type A virusIncubates rapidly

• Comes from wild birdsThey don’t show signs of illnessThey transmit to domestic animals such as chickens or pigs

• Domestic animals have no natural immunityPotential to transmit to humans through direct contactHumans have no natural immunity

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Cycles of the Asian H5N1 Virus in Animals and Humans

Waterfowl

Domestic birds

Mammals(primarily

swine)

Waterfowl

Humans

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What is Human Trafficking?

Illegal transportation of people for forced labour, sex exploitation, forced marriages…

Distinct difference between ‘people smuggling’ and ‘human trafficking’

Over one million people trafficked annually Major profits for both individual traffickers and organised criminal

groups (Triads, Mafia, Yakuza) who mislead/deceive victims: fake advertisements, mail-order catalogues etc.

Traffickers use blackmail, abuse, and threats to force victims to comply with their wishes in the destination country

Very often, cases go unreported Usually caused by poverty/lack of economic opportunities, especially

for women and children, and a demand for certain services in the destination country

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The Who and the WhatWho is targeted by traffickers? mainly women and children

Why are these people targeted by traffickers? Generally poorer and own less property Less well educated and more prone to the tricks of traffickers

What happens to these people? Victims have their passports removed and destroyed Themselves or families threatened Bonded by debt Arranged marriages Slave labor Prostitution

What are other issues?

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Concepts for Review

Acquired immunodeficiency syndrome (AIDS)Basic educationBrain drainDerived demandDiscount rate

Educational gender gap

Health system

Human capital

Human immunodeficiency virus (HIV)

Literacy

Neglected tropical diseases

Private benefits of education

Private costs of education

Social benefits of education

Social costs of education

World Health Organization (WHO)