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Estimating returns to education using twins in urban China

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  • Li, Hongbin
  • Liu, Pak Wai
  • Zhang, Junsen

Abstract

This paper empirically estimates the return to education using twins data that the authors collected from urban China. Our ordinary least-squares estimate shows that one year of schooling increases an individual's earnings by 8.4%. If we use a within-twin fixed effects model, the return is reduced to 2.7%, but rises to 3.8% after the correction of measurement error. These results suggest that a large portion of the estimated returns to education is due to omitted ability or the family effect. We further investigate why the true return is low and the omitted ability bias high, and find evidence showing that it may be a consequence of China's education system, which is highly selective and exam oriented. More specifically, we find that high school education may mainly serve as a mechanism to select college students, but as a human capital investment per se it has low returns in terms of earnings. In contrast, both vocational school education and college education have a large return that is comparable to that found in the United States.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Development Economics.

Volume (Year): 97 (2012)
Issue (Month): 2 ()
Pages: 494-504

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Handle: RePEc:eee:deveco:v:97:y:2012:i:2:p:494-504

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Web page: http://www.elsevier.com/locate/devec

Related research

Keywords: Returns to education; Twins; China;

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References

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Citations

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Cited by:
  1. Yao, Yang, 2014. "The Chinese Growth Miracle," Handbook of Economic Growth, in: Handbook of Economic Growth, edition 1, volume 2, chapter 7, pages 943-1031 Elsevier.
  2. Wei-Bin Zhang, 2013. "Education, Endogenous Human Capital, and Monetary Economic Growth with MIU Approach," Czech Economic Review, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, vol. 7(2), pages 100-118, July.
  3. Huang, Wei & Lei, Xiaoyan & Zhao, Yaohui, 2014. "One-Child Policy and the Rise of Man-Made Twins," IZA Discussion Papers 8394, Institute for the Study of Labor (IZA).
  4. Mark Rosenzweig & Junsen Zhang, 2014. "Co-residence, Life-Cycle Savings and Inter-generational Support in Urban China," NBER Working Papers 20057, National Bureau of Economic Research, Inc.
  5. Vinod Mishra & Russell Smyth, 2012. "Returns to Schooling in Urban China: New Evidence Using Heteroskedasticity Restrictions to Obtain Identification Without Exclusion Restrictions," Development Research Unit Working Paper Series 33-12, Monash University, Department of Economics.
  6. Wei-Bin ZHANG, 2014. "Human Capital, Wealth, and Renewable Resources," Expert Journal of Economics, Sprint Investify, vol. 2(1), pages 1-20.

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