Destructive Creation: School Turnover and Educational Attainment

This paper studies the effect of school entry and exit in the Chilean market-oriented educational system. During the period 1994-2012, 2,151 schools closed, roughly one-fifth of the current stock of schools. Nearly 245,000 studies were displaced from schools that closed. At the same time 3,770 new schools entered the school systems, mostly private-voucher schools. Given this significant school turnover we estimate the potential “productivity gains” associated to market’s creative destruction dynamics by studying its impact on the schools contribution to student’s educational achievement. We find that, at the municipality level, school turnover predicts improvements in school performance –after controlling for students’ socioeconomic status- only for low population municipalities, while it has no effects for high population municipalities. Moreover, we find a negative impact on school performance if turnover is associated with a significant school replacement. Finally we estimate the potential educational costs of this dynamics, trying to identify the causal effect of school closure on grade repetition and high-school dropout rates. Using a large panel of individual student data that contains academic achievement and socio-demographic characteristics, we identify a causal effect of school closures on grade retention and school dropouts. School exit is associated with a 70 per cent increase in the probability of grade repetition in 5th grade (3.5 percentage points) and a 79 percent increase in the probability of school dropout in tenth grade (1.1 percentage points). JEL Classification: HA; I2; R2. Key words: dropout.,Education,entry market turnout,exit,grade retention,school choice