The Medium Run Effects of Education Expansion: Evidence from A Large School Construction Program in Indonesia

56 Pages Posted: 17 Dec 2001

See all articles by Esther Duflo

Esther Duflo

Massachusetts Institute of Technology (MIT) - Department of Economics; Abdul Latif Jameel Poverty Action Lab (J-PAL); National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR); Bureau for Research and Economic Analysis of Development (BREAD)

Date Written: November 2001

Abstract

This paper studies the medium run consequences of an increase in the rate of accumulation of human capital in a developing country. From 1974 to 1978, the Indonesian government built over 61,000 primary schools. The school construction program led to an increase in education among individuals who were young enough to attend primary school after 1974, but not among the older cohorts. 2SLS estimates suggest that an increase of 10 percentage points in the proportion of primary school graduates in the labor force reduced the wages of the older cohorts by 3.8% to 10% and increased their formal labor force participation by 4% to 7%. I propose a two-sector model as a framework to interpret these findings. The results suggest that physical capital did not adjust to the faster increase in human capital.

Keywords: General equilibrium, Program evaluation, Adjustment costs

JEL Classification: O1, O4, I2

Suggested Citation

Duflo, Esther, The Medium Run Effects of Education Expansion: Evidence from A Large School Construction Program in Indonesia (November 2001). MIT Department of Economics Working Paper No. 01-46. Available at SSRN: https://ssrn.com/abstract=294311 or http://dx.doi.org/10.2139/ssrn.294311

Esther Duflo (Contact Author)

Massachusetts Institute of Technology (MIT) - Department of Economics ( email )

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Abdul Latif Jameel Poverty Action Lab (J-PAL) ( email )

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National Bureau of Economic Research (NBER)

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Centre for Economic Policy Research (CEPR)

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United Kingdom

Bureau for Research and Economic Analysis of Development (BREAD) ( email )

Duke University
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United States

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