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Estimating the Social Return on Schooling

In: Proceedings of the Conference on Human and Economic Resources

Author Info

  • Marcelo Soto

    (Instituto de Análisis Económico)

Abstract

A number of papers .nd that changes in schooling are not correlated with changes in per capita income. Two non-competing interpretations that have been given are that the social return on schooling is close to zero and the measurement error of changes in schooling is high. This paper shows that the lack of significance of schooling is threefold. First, there is a problem of a proper definition of the way in which years of schooling should enter in a production function. Second, collinearity between physical and human capital stocks seriously undermines the ability of educational indicators to display any significance in panel data estimates. And third, failure to cope with measurement error and endogeneity produces biased estimates. As opposed to the earlier empirical literature, the social return of schooling is positive and significant, but no Lucas-type externalities are observed.

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This chapter was published in:
  • Oguz Esen & Ayla Ogus (ed.), 2006. "Proceedings of the International Conference on Human and Economic Resources," Proceedings of the IUE-SUNY Cortland Conference in Economics, Izmir University of Economics, number 2006, January-J.
    • This item is provided by Izmir University of Economics in its series Papers of the Annual IUE-SUNY Cortland Conference in Economics with number 200605.
    Handle: RePEc:izm:prcdng:200605
    Contact details of provider: Fax: (90) 232 279 2626
    Web page: http://eco.ieu.edu.tr

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    Keywords: return on schooling; education; social return of schooling;

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    7. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
    8. Psacharopoulos, George, 1993. "Returns to investment in education : a global update," Policy Research Working Paper Series 1067, The World Bank.
    9. Alan B. Krueger & Mikael Lindahl, 2000. "Education for Growth: Why and For Whom?," NBER Working Papers 7591, National Bureau of Economic Research, Inc.
    10. Kalemli-Ozcan, Sebnem & Ryder, Harl E. & Weil, David N., 2000. "Mortality decline, human capital investment, and economic growth," Journal of Development Economics, Elsevier, vol. 62(1), pages 1-23, June.
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