Contextual Effects of Education on Poverty in Malawi

The paper uses Malawian data from the Third Integrated Household Survey to investigate the presence and pattern of contextual effects of community level education on household poverty. These contextual effects reflect the presence of education externalities at the community level. I use an adaptation of the Hausman-Taylor estimator for hierchical models which controls for level-2 endogeneity of community schooling. The results show that regardless of gender, there is a significant positive effect of community level education on household welfare in rural and urban areas which is over and above that arising from education within the household. These externalities of community level education are larger for females than males. The paper finds that the return to within household education is smaller in magnitude than the community level externality of education. These findings are robust to alternative definitions of schooling and level of aggregation. The paper also finds that in both rural and urban areas, least educated households enjoy significantly larger benefits from increases in female and male years of schooling at the community level than the most educated households. This means that community level schooling not only spillovers to the rest of the community membership in terms of improved living standards, but also the positive education spillovers on household welfare are equality-inducing.