Transcript Schooling and Labor Market Consequences of School Construction Paper by Esther Duflo

Schooling and Labor Market
Consequences of School
Construction
Paper by Esther Duflo
Presentation by Radha Iyengar
Motivation
• Estimated returns to education are thought
to be larger in developing countries than in
industrialized countries.
• Family and community background are
important determinants of both schooling
and labor market outcomes
Questions to be answered
• whether investments in infrastructure can
cause an increase in educational
attainment
• whether an increase in educational
attainment causes an increase in earnings
The ‘Natural Experiment’
• Look at the effect building schools has on education and
earnings in Indonesia
• Use a major school launched by the Indonesian
government launched (Sekolah Dasar INPRES) program
• Between 1973–1974 and 1978–1979, more than 61,000
primary schools were constructed— an average of two
schools per 1,000 children aged 5 to 14 in 1971.
• Enrollment rates among children aged 7 to 12 increased
from 69 percent in 1973 to 83 percent by 1978.
Identifying Assumption
• Treatment: Intensity of school construction in a
geographic area (high vs. low)
• Treatment Group: Compare younger cohort (2-6)
who were in school the whole time
• Control Group: Compare older cohort (12-17) who
were done with school by time of constructions
• Worry that this is all mean reversion so have a
second “falsification check” comparing the older
cohort (12-17) to and even older cohort (18-24)
Wald Test is the Ratio of these two (Change
in Earnings/ Change in Schooling)
Bottom Line
• A school construction program takes a very long
time to generate positive returns (because the
costs are incurred early on, whereas the
benefits are spread over a generation).
• The returns generated are large. The internal
rates of return range from 8.8 to 12 percent, well
above the average interest rate on government
debt in Indonesia during the period.
Major Issues #1
• Causal interpretation requires:
– No omitted time-varying and region-specific
effects correlated with the program.
– No changes in trends for different cohorts over
time
• Some support from Control Experiment but
– Control Experiment won’t be valid if both regionspecific and cohort specific trends
– Unclear what the true counterfactual trend is
Cohort-Specific Effects
• Large changes in growth also varied by region—but
it’s not clear what the overlap is here
• Given this, the Returns to Education are not stable,
so that the investment decision is not the same
– May not be that school construction helped
– May be that expected future returns changed
differentially by cohorts by region and so investment
increased
– This wouldn’t happen in older cohorts because no large
changes in growth
Major Issue #2
• The benefits are, to a large extent, driven by the
rapid growth of Indonesia’s GDP from 1973 to
1997
• As Duflo Notes:
“If the growth rate had been very low from 1973
until today, the net present value of the program
would actually have been slightly negative,
according to all specifications but one.”
External Validity
• Given Indonesia’s expected increase in
growth—investment in school is a good
idea BUT how much growth is needed is
sensitive to specification
• May not be appropriate to extend to other
populations