Income and schooling

Whereas existing literature has documented strong correlations between national incomes and measures of schooling attainment, causality has been hard to pin down. Much of empirical work had tended to interpret these correlations as implying an effect of human capital on national income, but recent calibrated models have argued that most of the link works, in fact, the other way around. In this paper, therefore, we take a close look as to whether income growth causes schooling from an empirical perspective. We do so by focusing on within-country variation and using instrumental variables estimation to extract exogenous variation in countries' national incomes. We detect a significant causal effect of income growth on various measures of schooling attainment, more so in poor countries.