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Self-employment earnings and returns to education in rural Peru

  • Sonia Laszlo

This article estimates the returns to education for households who derive part of their income from household based non-farm self-employment ventures in rural Peru. While education is an individual level variable, earnings are observed at the household level. This asymmetry complicates both the estimation and the interpretation of the returns to education. This article is the first jointly to incorporate three channels through which education affects household earnings. Education affects earnings through the marginal productivity of labour (worker effect), labour allocation across activities (between-activity allocative effect) and its production externality effect (spillover effect). The results suggest that the between-activity allocative effects of education dominate the returns. This article also makes novel use of economic geography to proxy for the role that access to markets plays in determining these returns. In particular, altitude is a strong predictor of activity choice and the returns to education in this mountainous country.

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Article provided by Taylor & Francis Journals in its journal Journal of Development Studies.

Volume (Year): 41 (2005)
Issue (Month): 7 ()
Pages: 1247-1287

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Handle: RePEc:taf:jdevst:v:41:y:2005:i:7:p:1247-1287
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  1. Damiano Kulundu Manda & Germano Mwabu & Mwangi S. Kimenyi, 2004. "Human Capital Externalities and Private Returns to Education in Kenya," Working papers 2004-08, University of Connecticut, Department of Economics.
  2. Mark Rosenzweig & Andrew D. Foster, . "Learning by Doing and Learning from Others: Human Capital and Technical Change in Agriculture," Home Pages _068, University of Pennsylvania.
  3. Alderman, Harold, et al, 1995. "Unitary versus Collective Models of the Household: Is It Time to Shift the Burden of Proof?," World Bank Research Observer, World Bank Group, vol. 10(1), pages 1-19, February.
  4. Vijverberg, Wim P. M., 1995. "Returns to schooling in non-farm self-employment: An econometric case study of Ghana," World Development, Elsevier, vol. 23(7), pages 1215-1227, July.
  5. John C. Chao & Norman Rasmus Swanson, 2004. "Alternative Approximations of the Bias and MSE of the IV Estimator Under Weak Identification with an Application to Bias Correction," Yale School of Management Working Papers ysm375, Yale School of Management.
  6. Alderman, H. & Chiappori, P.A. & Haddad, L., 1994. "Unitary versus Collective Models of the Household: Time to Shift the Burden of Proof?," DELTA Working Papers 94-17, DELTA (Ecole normale supérieure).
  7. Dennis Tao Yang, 1997. "Education in Production: Measuring Labor Quality and Management," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 79(3), pages 764-772.
  8. Barton H. Hamilton, 2000. "Does Entrepreneurship Pay? An Empirical Analysis of the Returns to Self-Employment," Journal of Political Economy, University of Chicago Press, vol. 108(3), pages 604-631, June.
  9. Schultz, Theodore W, 1975. "The Value of the Ability to Deal with Disequilibria," Journal of Economic Literature, American Economic Association, vol. 13(3), pages 827-46, September.
  10. Evans, David S & Jovanovic, Boyan, 1989. "An Estimated Model of Entrepreneurial Choice under Liquidity Constraints," Journal of Political Economy, University of Chicago Press, vol. 97(4), pages 808-27, August.
  11. Alberto Isgut, 2004. "Non-farm Income and Employment in Rural Honduras: Assessing the Role of Locational Factors," Journal of Development Studies, Taylor & Francis Journals, vol. 40(3), pages 59-86.
  12. Basu, Kaushik & Narayan, Ambar & Ravallion, Martin, 2001. "Is literacy shared within households? Theory and evidence for Bangladesh," Labour Economics, Elsevier, vol. 8(6), pages 649-665, December.
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