Destructive Creation: School Turnover and Educational Attainment

In this paper we analyze the effect of school entry and exit in the Chilean market- oriented educational system. During the period 1994-2012, nearly 2,150 schools closed (more than 2,800 if pre-K and kindergarten centers are included), around one-fifth of the current stock of schools. At the same time 3,770 new schools entered the school system, 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 students’ standardized achievement tests. We find that, at the municipality level, school turnover predicts changes in school performance -after control- ling for students’ socioeconomic status- only for low population municipalities, while it has no effect 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 60 per cent increase in the probability of grade repetition in 5th grade and a 79 per cent increase in the probability of school dropout in tenth grade.