Rates of Return to University Education: The Regression Discontinuity Design
AbstractEstimating the rate of return to a university degree has always been difficult due to the problem of omitted variable biases. Benefiting from a special feature of the University Admission system in China, which has clear cutoffs for university entry, combined with a unique data set with information on individual National College Entrance Examination (NCEE) scores, we estimate the Local Average Treatment Effects (LATE) of university education based on a Regression Discontinuity design. To the best of our knowledge, this is the first study to use RD design to estimate the causal effect of a university education on earnings. Our results show that the rates of return to 4-year university education relative to 3-year college education are 40 and 60 per cent for the compliers in the male and female samples, respectively, which are much larger than the simple OLS estimations revealed in previous literature. Since in our sample a large proportion of individuals are compliers (45 per cent for males and 48 per cent for females), the LATEs estimated in this paper have a relatively general implication. In addition, we find that the LATEs are likely to be larger than ATEs, suggesting that the inference drawn from average treatment effects might understate the true effects of the university expansion program introduced in China in 1999 and thereafter.
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Bibliographic InfoPaper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 4749.
Length: 43 pages
Date of creation: Feb 2010
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Other versions of this item:
- Elliott Fan & Xin Meng & Zhichao Wei & Guochang Zhao, 2010. "Rates of Return to University Education: the Regression Discontinuity Design," CEPR Discussion Papers 634, Centre for Economic Policy Research, Research School of Economics, Australian National University.
- I21 - Health, Education, and Welfare - - Education - - - Analysis of Education
- I28 - Health, Education, and Welfare - - Education - - - Government Policy
- J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-02-27 (All new papers)
- NEP-CNA-2010-02-27 (China)
- NEP-EDU-2010-02-27 (Education)
- NEP-LAB-2010-02-27 (Labour Economics)
- NEP-LTV-2010-02-27 (Unemployment, Inequality & Poverty)
- NEP-TRA-2010-02-27 (Transition Economics)
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- Loyalka, Prashant & Song, Yingquan & Wei, Jianguo, 2012. "The distribution of financial aid in China: Is aid reaching poor students?," China Economic Review, Elsevier, vol. 23(4), pages 898-917.
- Martin Carnoy & Prashant Loyalka & Gregory Androushchak & Anna Proudnikova, 2012. "The Economic Returns to Higher Education in the BRIC Countries and their Implications for Higher Education Expansion," HSE Working papers WP BRP 02/EDU/2012, National Research University Higher School of Economics.
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