The External Returns to Education: Evidence from Chinese Cities
SUNY at Buffalo, College of Arts & Sciences, Department of Economics
Journal of Urban Economics, Forthcoming
Following Rauch's (1993) seminal study, there has been a growing interest among economists in estimating human capital externalities at the individual level. In this paper, we provide a first set of estimates of the external returns to education in Chinese cities. We find that the external returns are at least as high as the private returns to education. OLS estimates of the external returns range from a low of 4.9% to a high of 6.7%. Two-stage least squares estimates indicate that a one-year increase in city average education could increase individual earnings by between 11% and 13%. We also examine the impact of economic reforms on the external returns to education and find suggestive evidence that economic reforms have raised the external returns to education in Chinese cities.
Keywords: Human capital externalities, external returns to education, urban economy
JEL Classification: J24, J31, O15
Date posted: August 29, 2006