Educational Investment Responses to Economic Opportunity: Evidence from Indian Road Construction

Abstract

The rural poor in developing countries, once economically isolated, are increasingly being connected to regional markets. Whether these new connections crowd out or encourage educational investment is a central question. We examine the impacts on educational choices of 115,000 new roads built under India’s flagship road construction program. We find that children stay in school longer and perform better on standardized exams. Treatment heterogeneity supports the predictions of a standard human capital investment model: enrollment increases are largest where nearby labor markets offer the highest returns to education, and lowest where they imply high opportunity costs of schooling.

JEL Classification: I25; O18; J24