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Returns to Schooling in Urban China: New Evidence Using Heteroskedasticity Restrictions to Obtain Identification Without Exclusion Restrictions

  • Vinod Mishra
  • Russell Smyth

We estimate the returns to schooling using matched employer-employee data from Shanghai. To do so, we use a novel identification strategy, proposed by Lewbel (2012), which utilizes a heteroscedastic covariance restriction to construct an internal instrumental variable (IV). We find that, for the full sample, the Lewbel (2012) IV estimation suggests returns to schooling generally in the range 25-30 per cent, which is higher than extant studies using conventional IVs. The findings in this study underpin the need for the Chinese government to continue to invest in education and help explain why private demand for education remains strong, despite rising cost.

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File URL: http://www.buseco.monash.edu.au/eco/research/papers/2012/3312retunsschoolingmishrasmyth.pdf
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Paper provided by Monash University, Department of Economics in its series Monash Economics Working Papers with number 33-12.

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Length: 31 pages
Date of creation: Sep 2012
Date of revision:
Handle: RePEc:mos:moswps:2012-33
Contact details of provider: Postal: Department of Economics, Monash University, Victoria 3800, Australia
Phone: +61-3-9905-2493
Fax: +61-3-9905-5476
Web page: http://www.buseco.monash.edu.au/eco/
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