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Liquidity constraints, opportunity cost and post-secondary education. Evidence from Colombia

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  • Millán Quijano, Jaime
  • Gamboa, Luis Fernando

Abstract

We provide new and clear evidence about the importance of liquidity constraints for post-secondary vocational education. Using two discontinuities that are used to allocate seats in free vocational education and eligibility for educational grants, we exploit the relationship between OLS and IV estimates of returns to education to test for the presence of short run liquidity in the fashion of Card (2001). Eligibility to financial aid increases enrollment in vocational education between 8 to 13 percentage points. Furthermore, we find that when we instrument post-secondary schooling with eligibility for financial aid IV estimates are larger than OLS estimates, suggesting that compliers to this instrument are individuals with high returns to education but who were not enrolling in post-secondary education before due to liquidity constraints. However, when the instrument is not linked with the cost of education IV estimates are not significantly larger than OLS estimates. Our analysis focuses on access to free vocational education, hence our results shed lights on the importance of the opportunity cost.

Suggested Citation

  • Millán Quijano, Jaime & Gamboa, Luis Fernando, 2018. "Liquidity constraints, opportunity cost and post-secondary education. Evidence from Colombia," UC3M Working papers. Economics 26290, Universidad Carlos III de Madrid. Departamento de Economía.
    • Handle: RePEc:cte:werepe:26290
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    More about this item

    JEL classification:

    • I26 - Health, Education, and Welfare - - Education - - - Returns to Education
    • C36 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Instrumental Variables (IV) Estimation
    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure

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