1Investing in Children

A brief review of the social and economic returns to investing in children

Policy Advisory Unit Division of Policy and Strategy

© UNICEF June 2012 Division of Policy and StrategyPolicy Advisory Unit

This document is a review of the literature. The findings, interpretations and conclusions do not reflect policies or views of UNICEF, nor do any of the studies cited here imply official endorsement.

This is a publication of the UNICEF Division of Policy and Strategy (DPS). For questions or comments, please contact David Anthony, Chief of the Policy Advisory Unit (danthony@unicef.org); Jingqing Chai, Chief of the Policy Analysis Unit (jchai@unicef.org); or Nicholas Rees, Policy Analysis Specialist, Policy Advisory Unit (nrees@unicef.org).

Cover photo credits: © UNICEF/NYHQ2009-2042/Youngmeyer, © UNICEF/NYHQ2011-1697/Pirozzi, © UNICEF/NYHQ2012-0283/Holt, © UNICEF/NYHQ2012-0197/Pirozzi, © UNICEF/NYHQ2008-1279/Estey

Why an investment case for children?

Why an investment case for children?The principle of investing in children rarely evokes controversy. However we look at it, to in-vest in a child is to invest in our common future: The world of tomorrow will inherit the children of today. Whether nations grow and prosper will depend heavily on the survival, health, educa-tion and protection of their citizens, particularly the youngest. There are several compelling reasons to invest in children:

Investing in children is fundamental to ensuring the realization of their rights. The 1989 UN Con-vention on the Rights of the Child, the most rapidly and widely ratified human rights treaty in history, sets out the legal obligations of national governments to realize children’s economic, social, civil, political and cultural rights to the maximum extent of their avail-able resources (Article 4).

Childhood is a unique window of opportu-nity. The science of child development tells us that even temporary deprivations experienced by young children can have irreversible effects on their future capabilities and, in turn, a nation’s fu-ture prospects. Interventions and policy choices made today will determine whether millions of children and youth are able to reach their full potential, or are left to face a future of worsening inequity and mar-ginalization. Many would agree that there could be no more compelling argument than that.

The benefits far outweigh the costs. Repeat-ed studies find that investments at relatively low financial costs during childhood can yield a life-time of gains, not only for individuals, but also for societies and economies. For example, in 2012 the Copenhagen Con-sensus, a panel of some of the world’s leading economists, was asked to identify, based on as-sumptions of cost-effectiveness, the priorities for policymakers and philanthropists over the com-ing four-year period to address some of the most

pressing global issues. The top five included bundled interventions to reduce undernutrition in pre-schoolers; a subsidy for malaria combination treatment; expanded childhood immunization coverage; de-worming of schoolchildren; and ex-panding tuberculosis treatment; all of these are highly relevant for children.

Investing in children can help promote eq-uitable, inclusive societies, allowing more people to effectively participate in their economic development. Because childhood is a unique window of opportunity, investments in poor children help create a level-playing field. All children should have access to the essen-tial health, educational, and nutritional require-ments. Providing these will allow more equal access to better paying jobs later in life, as well as improve productivity. Furthermore, because the poorest and most vulnerable groups in society might be unable to make the optimal investments on their own, there is a strong rationale for public investments in so-cial sectors related to children – especially when aimed at those most in need. The benefits to investing in children are not limited to those receiving the investment. Health-ier and more educated societies benefit every-one in them. And although there might be some time between when investments are made and the benefits to the society and economy are fully felt, the gains can be significant and long-lasting.

Over the years, as cost-effective interventions to address childhood deprivations have emerged, the case for investing in children has steadily strengthened. Below are some key findings from the literature. For a complete list of examples and references, please see the full UNICEF Social and Economic Policy Working Paper: Right in Principle and in Practice. A Review of the Social and Economic Returns to Investing in Children.*

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Early childhood represents a unique window of opportunity for investing in children’s cognitive and physical development. When a baby is born, his or her billions of brain cells are mostly un-connected. To function, they must be organized into networks that require trillions of connections (synapses). These connections depend both on genes and on environmental factors. In this way, the way a child’s brain is wired is extraordinarily interactive with experience.

The human brain is malleable and its capacity for reorganization continues throughout life and can be enhanced by interventions. Yet it is widely accepted that there are periods in life when the developing brain is particularly open to new experiences and especially able to take advan-tage of them. These critical or sensitive periods vary according to different functions (e.g., vision, hearing, cognitive skills), but mostly occur early in life. These periods are also critical for physi-cal development, as risk of stunting and anaemia is particularly high in the earliest years. Thus, even temporary deprivations experienced during this crucial time period can have irreversible negative effects on children’s future capabilities.

There are several additional benefits that stem from early childhood development:• Early childhood development investments can improve cognitive and physical development.

This can have implications for better educational performance, future productivity and wages when the children become adults.

• Investment in early childhood development has been shown to reduce crime rates and en-gagement in risky behaviour

• Governments benefit too: Early childhood development programmes have been shown to in-crease future wage-earning potential. Where more people are working and paying taxes, govern-ment revenues increase. Furthermore, wise investments early on in children’s lives can reduce the need for welfare, remedial education and out-of-work programmes later in life.

Early Childhood Development

An evaluation of the High/Scope Perry Preschool project, one of the most well-known in the US, found up to around $16 in benefits for every dollar invested, with public benefits estimated to be $12.90 per dollar invested. (Schweinhart et al., 2005)

A simulation on increasing pre-school enrolment in 73 countries found benefits in terms of higher future wages of $6.4-$17.6 per dollar invested. The simulation indicated potential long-term ben-efits which range from $11 to $34 billion. (Engle et al., 2011)

For The Chicago Child-Parent Center, a half-day programme for low-income children, benefits included increasing economic well-being and tax revenues, reducing public expenditures for remedial education, criminal justice treatment, and crime victims. The benefits are estimated to be approximately $7.14 per dollar invested. (Reynolds et al., 2002)

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Health is a fundamental human right, recognized in regional and international covenants and con-ventions as vital to all aspects of a person’s life and well-being, and as critical to realizing many other rights and freedoms. Yet, nearly 8 million children died in 2010 before reaching the age of 5, largely due to highly preventable causes such as pneumonia, diarrhoea and birth complications.

There are several ways improved health can additionally benefit society and the economy:• Better health can improve individual productivity. Healthy individuals are more likely to be

efficient at assimilating knowledge, have stronger mental and physical capabilities and, in consequence, obtain better educational outcomes (both through school attendance and per-formance), higher productivity levels, and higher incomes.

• Better health can facilitate demographic dividends. As children become healthier and more likely to live longer, fertility rates decline – and as the proportion of the population that is of working age increases, national income per capita can rise.

• Healthy environments can help propel investment and development. Where conditions are favourable, and an educated and healthy workforce available, businesses and entrepreneur-ial activity can flourish.

HealthEarly Childhood Development

Did you know...Childhood interventions are among the most cost-effective in terms of Disability Adjusted Life Years (DALYs) saved. Treating childhood illnesses, for example, have been found to cost be-tween $9 and $218 per DALY saved. DALYs is a measure that combines mortality and mor-bidity (one DALY is equivalent to one year of healthy life lost). (Laxminarayan et al., 2006)

One study found that reducing child deaths by 4.25 per thou-sand children born (about 5% of the sample studied) to moth-ers with low levels of education, can result in an almost 8% increase in GDP per capita 10 years later. (Grimm, 2010)

A one-year improvement in a population’s life expectancy is associated with a 4% increase in output. (Bloom et al., 2004)

Expanding an immunization programme in Sub-Saharan Africa can cost between $1 to $5 per DALY averted in Sub-Saharan Africa and $8 per DALY averted in South Asia. By compari-son, health interventions that treat other diseases have been shown to be much more costly. For example, interventions to treat stroke (ischemic) in Sub-Saharan Africa has been found to cost between $1,284 and $2,940 per DALY averted, and interventions to treat depression in South Asia can cost between $1,003 and $1,449. (Laxminarayan et al., 2006)

Reducing health inequality by 1% per year could increase a coun-try’s annual rate of GDP growth by 0.15%. This makes reducing health inequity by targeting the poorest children a very strong pol-icy alternative for improving economic growth. (Grimm, 2010)

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Water and SanitationAlmost half of the developing world’s population – 2.5 billion people – lack improved sanitation facilities, and over 780 million people still use unsafe drinking water sources. Children are dis-proportionately affected by poor water and sanitation provisions, carrying the highest burden of diarrhoeal diseases and worm infections. Better water, sanitation and hygiene practices are very closely linked to good health, and can significantly help reduce illness. Undernutrition has also been shown to improve productivity, save families and children considerable amounts of time, improve school attendance, and prevent unnecessary deaths. Furthermore, safe water and sanitation systems are very important in agricultural development and food production.

Taking into account reduced patient expenses due to avoided ill-nesses, value of time savings, productivity, days of school attendance gained, health-sector costs saved, and prevented deaths, the benefits of achieving the MDG target on water and sanitation are estimated to be between $3 and $34 per dollar invested. (Hutton and Haller, 2004)

Other studies on specific low-cost water and sanitation interventions (deep boreholes with public hand pumps, total community-led sanitation cam-paigns, and biosand filters) and one high-cost intervention (large multi-purpose dams in Africa) have found more conservative, yet still significant benefit-cost ratios, ranging from $1.8-$2.9 per dollar invested, depending on the nature of the intervention. (see Whittington et al., 2008)

Achieving the MDG targets on water and sanitation could yield a total annual economic benefit of $84 billion. (Hutton and Haller, 2004)

The estimated global savings to the health sector could be around $7 billion per year from meeting the MDG water and sanitation targets. (Hutton and Haller, 2004)

Time saved due to closer location of facilities, such as the re-location of a well or borehole to a closer site, the installation of piped water and closer access to toilets, was the greatest benefit, at $64 billion globally. (Hutton and Haller, 2004)

Another study estimated the economic impact of poor sani-tation to be between 1-2.5% of GDP for 18 African econo-mies. (Water and Sanitation Program, World Bank, 2012)

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NutritionAccess to adequate nutrition is an essential component of overall good health, and studies have shown very strong linkages between nutrition and cognitive, physical and emotional development. Undernutrition is associated with low-birth weight and stunting, which studies show impact cognitive development. Undernutrition also contributes to more than a third of under-five deaths globally.

There are several ways improved nutrition can additionally benefit society and the economy:• The links between nutrition, cognitive development and schooling can ultimately affect future

incomes, fertility and the well-being of future generations.• Nutrition has been shown to enhance the productivity of labour, decreasing susceptibility to

illness, and improve school performance.• People living on the edge of starvation are more likely to be risk-averse when it comes to

making investments, having cumulative effects on the macro-economy.

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Stunting which results in a 1% loss in adult height is asso-ciated with a 1.4 per cent loss in productivity. (Hunt, 2005)

The loss in adult income from being stunted could be up to 22%. (Grantham-McGregor et al., 2007)

Eliminating anaemia could result in a 5% to 17% increase in adult productivity. (see Horton and Ross, 2003)

Inadequate nutrition is responsible for a shortfall of between 0.23 and 4.7 percentage points in the annual growth rate of GDP per capita across 122 countries. (Arcand, 2001)

The Copenhagen Consensus 2012 identified treating undernutrition as the key global priority for policymakers and philanthropists. For about $100 per child, a bundle of interventions could reduce chronic undernutrition by 36% in devel-oping countries. In very poor countries, the authors find that each dollar spent has at least a $30 payoff. (Hoddinott, Rosegrant, and Torero, 2012)

Water and Sanitation

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EducationEducation is a basic human right, and investments can bring high benefits to individuals and society. Services and interventions in education throughout children’s lives are critical for main-taining progress and building further momentum.

There are several ways education can have additional benefits for society and the economy:• Better education status has been shown to be associated with lower disease burden, im-

proved individual-level productivity and skill-sets, access to higher wages, as well as positive externalities on the whole society and economy.

• Education adds skill to labour. Labour has been traditionally used in growth frameworks as a factor of production. Adding skill to labour, enhances the productivity of labour. Improvements to labour productivity through human capital can help ensure transition to a higher equilib-rium level of output.

• Education facilitates the capacity to absorb and develop new technologies. Where people are more skilled, adoption of new technologies becomes easier.

• Education has positive spill-over effects. Individuals receiving education are not the only ones who benefit from it; other people not directly receiving the education do too. People learn from each other; and a better educated society can help propel further sharing of ideas and skills, which can ultimately strengthen productivity and economic growth.

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A comprehensive review of the literature concluded that a one-year increase in the average years of schooling has been shown to be conservatively associated with a rise in per-capita income of 3-6%, or a higher growth rate of 1 percentage point. (Sianesi and Van Reenen, 2003)

A 1-year increase in the average years of school-ing of the labour force has been shown to raise output per worker by 5-15%. (Topel, 1999)

The average rate of return to education is estimated to be around 10% globally. The rate of return varies, however, depending on whether it is primary, secondary or tertiary, as well as on the wealth of the country. (Psacharopoulos and Patrinos, 2002)

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Social ProtectionSocial protection has emerged as an effective approach for assisting poor and disadvantaged children and families in building resilience, escaping poverty, and gaining better access to key social services by addressing demand-side factors. While policies to promote broad-based economic growth are fun-damental to overall social development, the benefits of growth do not always automatically reach the poorest and most marginalized. Social protection serves many functions to address these gaps.

Improved social protection can additionally benefit society and the economy:• Social protection interventions can improve the human development of children by increas-

ing access to and financing investment in health, nutrition, food security and education ser-vices. This in turn can improve society’s future productivity and workforce participation, and ultimately economic growth and prosperity.

• Social protection also helps to build resilience, strengthening capacity of households and families to care for their children, as well as their ability to respond and cope with shocks.

• Social protection can also enhance labour market participation, which has direct implications for household purchasing power.

• Social protection serves as an effective redistributive element within society, as it protects vulnerable populations from shocks, and helps to level the playing field so that marginalized and excluded families can more effectively participate in the economy.

Social protection can help reduce the poverty gap. In Brazil (Bolsa Familia) the poverty gap was reduced by 12% and in Mexico (Oportunidades) by 19% (See Dercon, 2011). In South Africa, a simulation on up-scaling the Child Support Grant estimated the poverty gap could decline by up to 28%, depending on how it was up-scaled. (EPRI, 2004)

Studies have shown that well-designed and judiciously applied social protec-tion programmes can decrease inequality. In Brazil (Bolsa Familia) and Mexico (Oportunidades), conditional cash transfer programmes were found to reduce the Gini coefficient, a commonly used measure of income inequality, by around 21%, and in Chile (Chile Solidario) by 15%. (Soares et al., 2009)

Social protection can help lower infant mortality. In Mexico (Oportu-nidades), child outcomes also improved: infant mortality decreased by 8% on average and 17% in rural areas. (Barham, 2011)

Social protection can help increase school enrolment. A conditional cash transfer programme targeted at the poorest has found school enrolment to increase in Turkey by around 10%. (Ahmed et al., 2006). In Ecuador, a pro-gramme (Bono de Desarrollo Humano) resulted in school enrolment among poor children to increase by around 10%. (Schady and Araujo, 2006). A schol-arship programme awarded to poor girls in Cambodia increased enrolment by up to 33% for recipients at programme schools. (Filmer and Schady, 2006)

Education

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Child LabourApproximately one in every six children aged 5 to 14 is exploited by child labour (ILO 2004); many of these children are working in hazardous conditions. Children who are forced to work often suffer from hazardous conditions. Other losses include missing the opportunity of education, and losing future earning capacity that could help break the cycle of poverty.

The scale of the worst forms of child labour makes it an urgent issue for the Millennium agenda, especially in the area of education. Achieving MDG2 (universal primary education) and MDG3 (gen-der parity in primary and secondary education) will require stepping up efforts to eliminate the worst forms of child labour. One key way of doing this will be to supply education that is safe, accessible and high quality.

Cost-benefit analysis on the effects of child labour estimate the value of improved productivity and earning capacity associated with greater education, and the value of reduced illnesses and injuries versus the cost of administering several measures to eliminate child labour, such as an income trans-fer and education supply, among others.

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Regionally, the benefit-cost ratios are also high.

In the Middle East and North Africa region, the ratio is estimated to be 8.4 to 1; • In Asia, the ratio is estimated to be 7.2 to 1; • In Latin America, the ratio is estimated to be 5.3 to 1;• In Sub-Saharan Africa, the ratio is estimated to be 5.2 to 1.•

(ILO, 2004)

Globally, the benefit-cost ratio of eliminating child labour is estimated to be 6.7 to 1. (ILO, 2004)

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ConclusionsInvesting in children is fundamental to protecting their human rights, and this is the priority. However, the literature demonstrates that there are many additional benefits to investing in children, which complement wider societal and broader economic goals. These include better so-cial outcomes, such as reduced poverty, inequality and mortality. They also include higher levels of productivity which have implications for the economy and development.

There remain a few gaps, however, in the literature. The wide variety of methodological differences, indicators and findings between the studies make comparisons difficult. Modalities in delivering interventions can also make a difference to the returns; innovative approaches which en-sure quality services at low costs reach the most marginalized popula-tions are more likely to be cost-effective. Furthermore, supporting insti-tutional and policy environments appear to have a strong effect on the impact of investments. Nevertheless, while more research is needed, the available evidence demonstrates that the investment case for children is compelling.

If governments are serious about reducing poverty, achieving great-er equity and social stability, and increasing economic growth, in-vesting in children is imperative. Redoubling our efforts for child survival and development, particularly for the most disadvantaged children, will be essential to regain any lost ground as a result of the recent global economic crisis, and build a foundation for more sus-tainable and equitable development in the future.

Child Labour

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ReferencesAhmed, A. U., Gilligan, D., Kudat, A., Colasan, R., Tatlidil, H., Ozbilgin, B., 2006. Interim impact evaluation of the conditional cash transfer program in Turkey: A quantitative assessment. Interim report, Washington DC: International Food Policy Research Institute.

Arcand, J.L., 2001. Undernourishment and Economic Growth: The Efficiency Cost of Hunger. FAO Economic and Social Development Paper 147.

Barham, T., 2011. A healthier start: The effect of conditional cash transfers on neonatal and in-fant mortality in rural Mexico. Journal of Development Economics, 94, pp. 74-85.

Bloom, D., Canning, D., and Sevilla, J., 2004. The Effect of Health on Economic Growth: A Pro-duction Function Approach. World Development, 32(1), pp. 1–13.

Dercon, S., 2011. Social Protection, Efficiency and Growth. CSAE Working Paper WPS. Oxford University.

Economic Policy Research Institute (EPRI), 2004. Final Report: The social and economic impact of South Africa’s social security system. EPRI Research Paper 37, Cape Town, EPRI, South Africa Department of Social Development

Engle, P.L., Fernald, L.C.H., Alderman, H., Behrman, J., O’Gara, C., Yousafzai, A., Meena, de Mello, C., Hidrobo, M., Ulkuer, N., Ertem, I., Iltus, S., and the Global Child Development Steering Group, 2011. Strategies for reducing inequalities and improving developmental outcomes for young children in low-income and middle-income countries. The Lancet, 378(9799), pp. 1339–53.

Filmer D. and Schady, N., 2006. Getting girls into school: Evidence from a scholarship program in Cambodia. World Bank Policy Research Working Paper 3910. Washington, DC: World Bank.

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ReferencesGrantham-McGregor, S., Cheung, Y., Cueto, S., Glewwe, P., Richter, L., Strupp, B., and the International Child Development Steering Group, 2007. Developmental potential in the first 5 years for children in developing countries. The Lancet, 369(9555), pp. 60-70.

Grimm, M., 2010. Does inequality in health impede growth? ISS Working Papers, General Series 501, International Institute of Social Studies of Erasmus University (ISS), The Hague.

Horton, S. and Ross, J., 2003. The Economics of Iron Deficiency. Food Policy 28(1), pp. 51–75.

Hunt, J.M., 2005. The Potential Impact of Reducing Global Malnutrition on Poverty Reduction and Economic Development. Asia. Pac. J. Clin. Nutr. 14(S), pp. 10–38.

Hutton, G. and Haller, L., 2004. Evaluation of the costs and benefits of water and sanitation im-provements at the Global Level. WHO: Geneva.

ILO 2004. Investing in Every Child: An Economic Study of the Costs and Benefits of Eliminating Child Labour. ILO. Geneva, Switzerland

Laxminarayan, R., Chow, J. and Shahid-Salles, S. A., 2006. Chapter 2: Intervention Cost-Effec-tiveness: Overview of Main Messages. In: Disease Control Priorities in Developing Countries, 2nd ed. Washington (DC): World Bank.

Psacharopoulos, G. and Patrinos, H. A., 2002. Returns to investment in education: a further up-date. Policy Research Working Paper, No. 2881. The World Bank.

Reynolds, A. J., Temple, J. A., Robertson, D. L. and Mann, E. A., 2002. Age 21 cost-benefit analysis of the Title I Chicago Child- Parent Centers. Educational Evaluation and Policy Analy-sis, 4(24), pp. 267–303.

Schady N., Araujo M.C., 2006. Cash transfers, conditions, school enrollment, and child work: Evidence from a randomized experiment in Ecuador. Washington, DC: World Bank.

Schweinhart, L., Montie, J., Xiang, Z., Barnett, W.S., Belfield, C.R., Nores, M (2005) The High/Scope Perry Preschool Study Through Age 40 Summary, Conclusions, and Frequently Asked Questions. This summary is based on excerpts from Lifetime Effects: The High/Scope Perry Preschool Study Through Age 40 (pp. 194–215), by Lawrence J. Schweinhart, Jeanne Strauss, John and Duncan Thomas. (1998). Health, Nutrition and Economic Development. Journal of Economic Literature 36: 766-817.

Sianesi, B., Van Reenen, J. 2003. The Returns to Education: Macroeconomics. Journal of Eco-nomic Surveys, Vol. 17. No. 2

Soares, S., Osório, R.G., Soares, F.V., Medeiros, M. and Zepeda, E., 2009. Conditional Cash Transfer in Brazil, Chile and Mexico: Impacts Upon Inequality. Estudios Económicos, Numero extraordinario, pp. 207-224.

Topel, R., 1999. Labor Markets and Economic Growth. In: O. Ashenfelter and D. Card., Hand-book of Labor Economics, ed. Amsterdam: Elsevier Science B.V., 2943-29.

UNICEF and World Health Organization, 2012. Progress on Drinking Water and Sanitation: 2012 UPDATE.

Water and Sanitation Program, World Bank, 2012. Economic Impacts of Poor Sanitation in Af-rica. Available at: www.wsp.org

Whittington, D., Hanemann, W. M., Sadofff, C. and Jeuland, M., 2008. Water and Sanitation. In: Bjørn Lomborg, ed., Global crises, global solutions. 2nd edition, Chapter 7. Cambridge Uni-versity Press. pp. 355-429.

*For a complete list of examples and references, please see the full UNICEF Social and Economic Policy Working Paper: Rees, N., Chai, J., Anthony, D. (2012) Right in Principle and in Practice. A Review of the Social and Economic Returns to Investing in Children. UNICEF Social and Economic Policy Working Paper. UNICEF New York. [accessible at www.unicef.org/socialpolicy]

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If we are serious aboutreducing poverty, achieving greater equity and socialstability, and increasingeconomic growth, investing in children is imperative ■

For information contact

Policy Advisory UnitDivision of Policy and StrategyUNICEF

Investing in ChildrenInvesting in Children