Econ

omic

s 27

0cD

evel

opm

ent E

cono

mic

s

Lect

ure

11 –

Apr

il 3,

200

7

Eco

nom

ics

270c

: Lec

ture

11

2

Lect

ure

1: G

loba

l pat

tern

s of

eco

nom

ic g

row

th a

nd d

evel

opm

ent (

1/16

)

The

polit

ical

eco

nom

y of

dev

elop

men

tLe

ctur

e 2:

Ineq

ualit

y an

d gr

owth

(1/2

3)Le

ctur

e 3:

Cor

rupt

ion

(1/3

0) –

Gue

st le

ctur

e by

Ben

Olk

enLe

ctur

e 4:

His

tory

and

inst

itutio

ns (2

/6)

Lect

ure

5: D

emoc

racy

and

dev

elop

men

t (2/

13)

Lect

ure

6: E

thni

c an

d so

cial

div

isio

ns (2

/20)

Lect

ure

7: E

cono

mic

The

orie

s of

Con

flict

(2/2

7)Le

ctur

e 8:

War

and

Eco

nom

ic D

evel

opm

ent (

3/6)

Hum

an re

sour

ces

Lect

ure

9: H

uman

cap

ital a

nd in

com

e gr

owth

(4/3

)Le

ctur

e 10

: Inc

reas

ing

hum

an c

apita

l (4/

10)

Lect

ure

11: H

ealth

and

nut

ritio

n (3

/13)

Lect

ure

12: T

he E

cono

mic

s of

HIV

/AID

S (3

/20)

Lect

ure

13: L

abor

mar

kets

and

mig

ratio

n (4

/17)

Lect

ure

14: E

nviro

nmen

t and

dev

elop

men

t (4/

24)

Lect

ure

15: S

ocia

l Lea

rnin

g an

d Te

chno

logy

Ado

ptio

n (5

/1)

Eco

nom

ics

270c

: Lec

ture

11

3

•R

efer

ee re

port

#3 h

as b

een

grad

ed a

nd w

ill b

e pa

ssed

ba

ck a

t the

end

of c

lass

toda

y

•I w

ill c

olle

ct p

robl

em s

et #

1 du

ring

the

brea

k

•I w

ill p

ass

out p

robl

em s

et #

2 ne

xt w

eek

•P

leas

e co

me

by m

y of

fice

hour

s to

dis

cuss

you

r 7-8

pa

ge re

sear

ch p

ropo

sal (

due

May

8th

)

Eco

nom

ics

270c

: Lec

ture

11

4

Eco

nom

ics

270c

: Lec

ture

11

5

(1) H

uman

cap

ital i

n ec

onom

ic d

evel

opm

ent

(2) K

rueg

er a

nd L

inda

hl(2

001)

on

educ

atio

n an

d m

acro

econ

omic

gro

wth

(3) D

uflo

(200

1) o

n th

e re

turn

s to

sch

oolin

g in

Indo

nesi

a

Lect

ure

11 o

utlin

e

Eco

nom

ics

270c

: Lec

ture

11

6

(1) H

uman

cap

ital i

n ec

onom

ic d

evel

opm

ent

•Th

ere

have

bee

n m

assi

ve in

crea

ses

in li

tera

cy a

nd

scho

olin

g at

tain

men

t aro

und

the

wor

ld –

Afri

ca, A

sia,

La

tin A

mer

ica

–du

ring

the

past

50

year

s

•A

t the

regi

onal

leve

l, in

crea

sed

scho

olin

g do

es n

ot li

ne

up w

ell w

ith fa

ster

eco

nom

ic g

row

th ra

tes.

E.g

., S

ub-

Sah

aran

Afri

ca v

ersu

s S

outh

Asi

a

Eco

nom

ics

270c

: Lec

ture

11

7

Eco

nom

ics

270c

: Lec

ture

11

8

Eco

nom

ics

270c

: Lec

ture

11

9

(1) H

uman

cap

ital i

n ec

onom

ic d

evel

opm

ent

•Th

ere

have

bee

n m

assi

ve in

crea

ses

in li

tera

cy a

nd

scho

olin

g at

tain

men

t aro

und

the

wor

ld –

Afri

ca, A

sia,

La

tin A

mer

ica

–du

ring

the

past

50

year

s

•A

t the

regi

onal

leve

l, in

crea

sed

scho

olin

g do

es n

ot li

ne

up w

ell w

ith fa

ster

eco

nom

ic g

row

th ra

tes.

E.g

., S

ub-

Sah

aran

Afri

ca v

ersu

s S

outh

Asi

a

•Th

is is

con

sist

ent w

ith th

e vi

ew th

at in

stitu

tions

/ te

chno

logy

“A”m

atte

r mor

e fo

r gro

wth

than

phy

sica

l /

hum

an c

apita

l inv

estm

ents

. But

in th

e sh

ort-r

un b

oost

ing

capi

tal c

ould

stil

l inc

reas

e in

com

e le

vels

Eco

nom

ics

270c

: Lec

ture

11

10

(1) H

uman

cap

ital i

n ec

onom

ic d

evel

opm

ent

•Th

is w

eek:

wha

t is

the

retu

rn to

sch

oolin

g in

less

de

velo

ped

coun

tries

?

Eco

nom

ics

270c

: Lec

ture

11

11

(1) H

uman

cap

ital i

n ec

onom

ic d

evel

opm

ent

•Th

is w

eek:

wha

t is

the

retu

rn to

sch

oolin

g in

less

de

velo

ped

coun

tries

?

•N

ext w

eek:

whi

ch in

puts

lead

to m

ore

educ

atio

nal

prod

uctio

n? W

hat d

oes

the

educ

atio

n pr

oduc

tion

func

tion

look

like

?

•In

man

y po

or c

ount

ries,

edu

catio

n sp

endi

ng is

the

larg

est s

ingl

e re

curr

ent d

iscr

etio

nary

bud

get e

xpen

ditu

re

item

. E.g

., in

Gha

na in

the

late

199

0s, e

duca

tion

was

35

% o

f dis

cret

iona

ry e

xpen

ditu

res

Eco

nom

ics

270c

: Lec

ture

11

12

(1) D

iffer

ent c

once

ptio

ns o

f edu

catio

n

•B

enef

its o

f edu

catio

n in

clud

e:--

Hig

her w

ages

(“hu

man

cap

ital”)

--E

duca

tion

as c

onsu

mpt

ion

(rea

ding

Sha

kesp

eare

)--

Edu

catio

n as

a s

igna

l of a

bilit

y

Eco

nom

ics

270c

: Lec

ture

11

13

(1) D

iffer

ent c

once

ptio

ns o

f edu

catio

n

•B

enef

its o

f edu

catio

n in

clud

e:--

Hig

her w

ages

(“hu

man

cap

ital”)

--E

duca

tion

as c

onsu

mpt

ion

(rea

ding

Sha

kesp

eare

)--

Edu

catio

n as

a s

igna

l of a

bilit

y--

**P

ossi

ble

soci

al b

enef

its in

clud

e la

bor p

rodu

ctiv

ity

spill

over

s, a

“bet

ter”

func

tioni

ng d

emoc

racy

(?),

less

cr

ime

(?),

child

hea

lth (?

)

Eco

nom

ics

270c

: Lec

ture

11

14

(1) D

iffer

ent c

once

ptio

ns o

f edu

catio

n

•B

enef

its o

f edu

catio

n in

clud

e:--

Hig

her w

ages

(“hu

man

cap

ital”)

--E

duca

tion

as c

onsu

mpt

ion

(rea

ding

Sha

kesp

eare

)--

Edu

catio

n as

a s

igna

l of a

bilit

y--

**P

ossi

ble

soci

al b

enef

its in

clud

e la

bor p

rodu

ctiv

ity

spill

over

s, a

“bet

ter”

func

tioni

ng d

emoc

racy

(?),

less

cr

ime

(?),

child

hea

lth (?

)

•C

osts

: Opp

ortu

nity

cos

t of t

ime

stud

ying

; tui

tion

cost

s

•P

oten

tial a

genc

y is

sues

with

in th

e ho

useh

old

Eco

nom

ics

270c

: Lec

ture

11

15

(1) E

stim

atin

g M

ince

rian

wag

e re

gres

sion

s

•Th

e M

ince

rian

wag

e re

gres

sion

:ln

(wi)

= b 0

+ b 1

Si+

b2X

i+ b

3Xi2

+ e i

whe

re w

is th

e in

divi

dual

wag

e, S

is y

ears

of s

choo

ling,

an

d X

is y

ears

of e

xper

ienc

e, fo

r ind

ivid

ual i

Eco

nom

ics

270c

: Lec

ture

11

16

(1) E

stim

atin

g M

ince

rian

wag

e re

gres

sion

s

•Th

e M

ince

rian

wag

e re

gres

sion

:ln

(wi)

= b 0

+ b 1

Si+

b2X

i+ b

3Xi2

+ e i

whe

re w

is th

e in

divi

dual

wag

e, S

is y

ears

of s

choo

ling,

an

d X

is y

ears

of e

xper

ienc

e, fo

r ind

ivid

ual i

•Th

is h

as b

een

run

in li

tera

lly d

ozen

s of

cou

ntrie

s, a

nd

estim

ates

of b

1us

ually

fall

in th

e ra

nge

0.05

-0.1

5

•R

elia

bly

estim

atin

g th

is e

quat

ion

has

been

cen

tral t

o la

bor e

cono

mic

s fo

r 30+

yea

rs. P

ossi

ble

upw

ard

sele

ctio

n / o

mitt

ed v

aria

bles

bia

s, a

nd p

ossi

ble

dow

nwar

d at

tenu

atio

n bi

as d

ue to

mea

sure

men

t err

or

Eco

nom

ics

270c

: Lec

ture

11

17

(1) M

easu

rem

ent e

rror a

nd a

ttenu

atio

n bi

as

•Im

agin

e th

e ex

act (

but u

nmea

sure

d) v

aria

ble

X*

is

impe

rfect

ly c

aptu

red

by th

e (m

easu

red)

var

iabl

e X

:X

i= X

* i+

u iw

here

uiis

an

i.i.d

. nor

mal

ly d

istri

bute

d ra

ndom

var

iabl

e.

This

is c

lass

ical

mea

sure

men

t err

or--

X c

ould

be

year

s of

sch

oolin

g, X

* re

al s

kills

Eco

nom

ics

270c

: Lec

ture

11

18

(1) M

easu

rem

ent e

rror a

nd a

ttenu

atio

n bi

as

•Im

agin

e th

e ex

act (

but u

nmea

sure

d) v

aria

ble

X*

is

impe

rfect

ly c

aptu

red

by th

e (m

easu

red)

var

iabl

e X

:X

i= X

* i+

u iw

here

uiis

an

i.i.d

. nor

mal

ly d

istri

bute

d ra

ndom

var

iabl

e.

This

is c

lass

ical

mea

sure

men

t err

or--

X c

ould

be

year

s of

sch

oolin

g, X

* re

al s

kills

•W

e w

ant t

o ru

n th

e re

gres

sion

Yi=

a +

bX

* i+

e ibu

t due

to

dat

a lim

itatio

ns h

ave

to ru

n Y

i= α

+ βX

i+ ε

i

Eco

nom

ics

270c

: Lec

ture

11

19

(1) M

easu

rem

ent e

rror a

nd a

ttenu

atio

n bi

as

•Th

e co

effic

ient

of i

nter

est i

s b,

whe

re O

LS d

eliv

ers:

bOLS

= C

ov(X

*,Y

)/Var

(X*)

Eco

nom

ics

270c

: Lec

ture

11

20

(1) M

easu

rem

ent e

rror a

nd a

ttenu

atio

n bi

as

•Th

e co

effic

ient

of i

nter

est i

s b,

whe

re O

LS d

eliv

ers:

bOLS

= C

ov(X

*,Y

)/Var

(X*)

•B

ut w

e en

d up

est

imat

ing:

βOLS

= C

ov(X

,Y)/V

ar(X

)=

[Cov

(X*,

Y) +

Cov

(u, Y

)] / [

Var

(X*)

+ V

ar(u

)]=

[Cov

(X*,

Y)]

/ [V

ar(X

*) +

Var

(u)]

= [C

ov(X

*,Y

)*V

ar(X

*)/V

ar(X

*)] /

[Var

(X*)

+Var

(u)]

= bO

LS*

Var

(X*)

/ [V

ar(X

*) +

Var

(u)]

Eco

nom

ics

270c

: Lec

ture

11

21

(1) M

easu

rem

ent e

rror a

nd a

ttenu

atio

n bi

as

•Th

e co

effic

ient

of i

nter

est i

s b,

whe

re O

LS d

eliv

ers:

bOLS

= C

ov(X

*,Y

)/Var

(X*)

•B

ut w

e en

d up

est

imat

ing:

βOLS

= C

ov(X

,Y)/V

ar(X

)=

[Cov

(X*,

Y) +

Cov

(u, Y

)] / [

Var

(X*)

+ V

ar(u

)]=

[Cov

(X*,

Y)]

/ [V

ar(X

*) +

Var

(u)]

= [C

ov(X

*,Y

)*V

ar(X

*)/V

ar(X

*)] /

[Var

(X*)

+Var

(u)]

= bO

LS*

Var

(X*)

/ [V

ar(X

*) +

Var

(u)]

•B

ias

tow

ards

zer

o, a

s a

func

tion

of th

e si

gnal

-noi

se ra

tio,

i.e.,

if ha

lf th

e va

rianc

e of

X is

noi

se, t

he b

ias

is 5

0%

Eco

nom

ics

270c

: Lec

ture

11

22

(1) I

V a

nd lo

cal a

vera

ge tr

eatm

ent e

ffect

s

•A

noth

er im

porta

nt is

sue

in e

stim

atin

g th

e re

turn

s to

sc

hool

ing

aris

es w

hen

usin

g in

stru

men

tal v

aria

bles

(IV

): m

ost I

V a

ppro

ache

s th

at re

ly o

n ex

ogen

ous

shift

s in

at

tain

ed s

choo

ling

iden

tify

effe

cts

only

for t

he p

opul

atio

n af

fect

ed b

y th

e sh

ift in

atta

inm

ent (

Ang

rist,

Imbe

nsan

d R

ubin

199

6)

loca

l ave

rage

trea

tmen

t effe

ct (L

ATE

)

Eco

nom

ics

270c

: Lec

ture

11

23

(1) R

etur

ns to

sch

oolin

g in

poo

r cou

ntrie

s

•G

iven

thes

e co

ncer

ns o

ver i

dent

ifica

tion,

mea

sure

men

t er

ror,

and

exte

rnal

val

idity

, few

stu

dies

in d

evel

opin

g co

untri

es h

ave

rigor

ousl

y es

timat

ed re

turn

s to

sch

oolin

g in

less

dev

elop

ed c

ount

ries.

How

sho

uld

we

inte

rpre

t M

ince

rian

regr

essi

ons?

--D

uflo

(200

1) is

a n

otab

le e

xcep

tion

•U

sing

Min

ceria

nre

gres

sion

s, P

aul S

chul

tz h

as fo

und

quite

low

“ret

urns

”to

prim

ary

scho

olin

g ac

ross

mul

tiple

A

frica

n co

untri

es in

rece

nt y

ears

, alth

ough

reas

onab

ly

high

retu

rns

to s

econ

dary

sch

oolin

g

Eco

nom

ics

270c

: Lec

ture

11

24

(2) K

rueg

er a

nd L

inda

hl(2

001)

•S

ome

rese

arch

ers

have

focu

sed

on th

e m

acro

econ

omic

ev

iden

ce u

sing

cro

ss-c

ount

ry re

gres

sion

met

hods

•O

ne p

ossi

ble

adva

ntag

e of

the

mac

ro a

ppro

ach

is th

e ab

ility

to c

aptu

re s

ocia

l ben

efits

of s

choo

ling,

e.g

., la

bor

prod

uctiv

ity s

pillo

vers

mis

sed

usin

g in

divi

dual

dat

a--

This

wou

ld s

ugge

st m

acro

est

imat

es s

houl

d be

larg

er

than

mic

ro e

stim

ates

--Fr

om a

pol

icy

poin

t of v

iew

, soc

ial b

enef

its a

re m

ore

impo

rtant

to u

nder

stan

d th

an p

rivat

e be

nefit

s

Eco

nom

ics

270c

: Lec

ture

11

25

(2) K

rueg

er a

nd L

inda

hl(2

001)

•Th

e m

icro

Min

ceria

nre

gres

sion

for p

erso

n i i

n co

untry

j at

tim

e t i

s: ln

(wijt) =

b0j

t+

b 1jtS

ijt+

e ijt

•N

ow a

ggre

gate

up

to th

e co

untry

leve

l (w

here

Y is

now

th

e ge

omet

ric m

ean

of in

com

e ra

ther

than

the

wag

e):

ln(Y

jt) =

b0j

t+

b 1jtS

jt+

e jt

Eco

nom

ics

270c

: Lec

ture

11

26

(2) K

rueg

er a

nd L

inda

hl(2

001)

•Th

e m

icro

Min

ceria

nre

gres

sion

for p

erso

n i i

n co

untry

j at

tim

e t i

s: ln

(wijt) =

b0j

t+

b 1jtS

ijt+

e ijt

•N

ow a

ggre

gate

up

to th

e co

untry

leve

l (w

here

Y is

now

th

e ge

omet

ric m

ean

of in

com

e ra

ther

than

the

wag

e):

ln(Y

jt) =

b0j

t+

b 1jtS

jt+

e jt

•N

ow c

onsi

der c

hang

es in

log

per c

apita

inco

me:

∆ln(

Yjt)

=

b 0+

b 1jtS

jt–

b 1jt-

1Sjt-

1+

∆eit

= b 0

+ b 1

jt(S

jt–S

it-1)

–(b

1jt-1

–b1j

t)Sjt-

1+

∆eit

= b 0

+ b 1

jt ∆S

jt+

∆b1j

t Sjt-

1+

∆ejt

Eco

nom

ics

270c

: Lec

ture

11

27

(2) K

rueg

er a

nd L

inda

hl(2

001)

•∆l

n(Y

jt)

= b 0

+ b 1

jtSjt

–b 1

jt-1S

jt-1

+ ∆e

it

= b 0

+ b 1

jt(S

jt–S

it-1)

–(b

1jt-1

–b1j

t)Sjt-

1+

∆eit

= b 0

+ b 1

jt ∆S

jt+

∆b1j

t Sjt-

1+

∆ejt

•Th

e co

effic

ient

est

imat

e on

lagg

ed s

choo

ling

refle

cts

chan

ges

in th

e re

turn

s to

sch

oolin

g ov

er ti

me.

It is

un

clea

r a p

riori

wha

t sig

n th

is s

houl

d ha

ve. T

he R

omer

(199

0) m

odel

pre

dict

s a

posi

tive

sign

•Lu

cas

(198

8) p

redi

cts

that

incr

ease

s in

an

accu

mul

able

fact

or li

ke h

uman

cap

ital i

s as

soci

ated

with

hig

her

inco

me,

so

b 1jt

> 0

(esp

ecia

lly c

onsi

derin

g so

cial

retu

rns)

Eco

nom

ics

270c

: Lec

ture

11

28

(2) K

rueg

er a

nd L

inda

hl(2

001)

•E

xist

ing

cros

s-co

untry

stu

dies

regr

essi

ng in

com

e gr

owth

on

hum

an c

apita

l fin

d po

sitiv

e im

pact

s of

lagg

ed

scho

olin

g st

ocks

on

grow

th, b

ut s

mal

l and

not

ver

y la

rge

effe

cts

of c

hang

es in

edu

catio

nal a

ttain

men

t, sa

y 4%

per

ye

ar o

f sch

oolin

g –

not w

hat w

e w

ould

exp

ect

Eco

nom

ics

270c

: Lec

ture

11

29

Eco

nom

ics

270c

: Lec

ture

11

30

(2) K

rueg

er a

nd L

inda

hl(2

001)

•E

xist

ing

cros

s-co

untry

stu

dies

regr

essi

ng in

com

e gr

owth

on

hum

an c

apita

l fin

d po

sitiv

e im

pact

s of

lagg

ed

scho

olin

g st

ocks

on

grow

th, b

ut s

mal

l and

not

ver

y la

rge

effe

cts

of c

hang

es in

edu

catio

nal a

ttain

men

t, sa

y 4%

per

ye

ar o

f sch

oolin

g –

not w

hat w

e w

ould

exp

ect

•A

re th

e m

icro

est

imat

es ju

st h

opel

ess

bias

ed (u

pwar

ds)

by o

mitt

ed v

aria

bles

/ se

lect

ion?

•O

r cou

ld m

easu

rem

ent e

rror

in n

atio

nal e

duca

tiona

l dat

a be

to b

lam

e?

Eco

nom

ics

270c

: Lec

ture

11

31

(2) K

rueg

er a

nd L

inda

hl(2

001)

•S

ourc

es o

f mea

sure

men

t err

or in

mac

ro e

duca

tion

data

:--

Diff

eren

ces

in th

e qu

ality

of s

choo

ling

acro

ss c

ount

ries

(e.g

., th

ere

are

big

diffe

renc

es e

ven

acro

ss U

.S. t

owns

)--

The

wid

ely

used

UN

ES

CO

dat

abas

e, b

ased

on

Min

istry

of E

duca

tion

stat

istic

s. T

hese

may

be

unre

liabl

e du

e to

a la

ck o

f tra

ined

sta

tistic

al p

erso

nnel

, res

ourc

es--

UN

ES

CO

dat

a us

e en

rollm

ent a

t sta

rt of

sch

ool y

ear

--C

hild

ren

educ

ated

abr

oad

not c

ount

ed

•M

easu

rem

ent e

rror

may

be

exac

erba

ted

in fi

rst

diffe

renc

ed s

peci

ficat

ions

, lik

e gr

owth

regr

essi

ons

Eco

nom

ics

270c

: Lec

ture

11

32

(2) K

rueg

er a

nd L

inda

hl(2

001)

•C

onsi

der t

he fi

rst d

iffer

ence

d re

gres

sion

equ

ival

ent t

o ou

r exa

mpl

e ab

ove,

now

∆Y

ion

∆Xi.

The

estim

ate

of th

e ke

y co

effic

ient

βbe

com

es:

βOLS

= C

ov(∆

X, ∆

Y)/V

ar(∆

X)

= bO

LS*

Var

(X*)

/ [V

ar(X

*) +

Var

(u)*

Ω]

whe

re Ω

= (1

–ρ u

) / (1

–ρ X

*), w

here

ρca

ptur

es th

e ex

tent

of s

eria

l cor

rela

tion

acro

ss ti

me

in a

var

iabl

e

Eco

nom

ics

270c

: Lec

ture

11

33

(2) K

rueg

er a

nd L

inda

hl(2

001)

•C

onsi

der t

he fi

rst d

iffer

ence

d re

gres

sion

equ

ival

ent t

o ou

r exa

mpl

e ab

ove,

now

∆Y

ion

∆Xi.

The

estim

ate

of th

e ke

y co

effic

ient

βbe

com

es:

βOLS

= C

ov(∆

X, ∆

Y)/V

ar(∆

X)

= bO

LS*

Var

(X*)

/ [V

ar(X

*) +

Var

(u)*

Ω]

whe

re Ω

= (1

–ρ u

) / (1

–ρ X

*), w

here

ρca

ptur

es th

e ex

tent

of s

eria

l cor

rela

tion

acro

ss ti

me

in a

var

iabl

e

•Fi

rst d

iffer

enci

ng e

xace

rbat

es a

ttenu

atio

n w

hen

ther

e is

m

ore

seria

l cor

rela

tion

in s

choo

ling

than

in m

easu

rem

ent

erro

r –th

is is

like

ly. “

Diff

eren

cing

out

”sig

nal l

eave

s no

ise

Eco

nom

ics

270c

: Lec

ture

11

34

(2) K

rueg

er a

nd L

inda

hl(2

001)

•E

limin

atin

g “s

igna

l”fro

m th

e ke

y ex

plan

ator

y va

riabl

e by

in

clud

ing

addi

tiona

l con

trols

can

als

o ex

acer

bate

m

easu

rem

ent e

rror

•Th

e re

lativ

e R

2 ’s o

f the

regr

essi

ons

with

and

with

out

addi

tiona

l con

trols

det

erm

ines

the

exte

nt o

f atte

nuat

ion

bias

tow

ards

zer

o du

e to

thes

e co

ntro

ls

Eco

nom

ics

270c

: Lec

ture

11

35

(2) K

rueg

er a

nd L

inda

hl(2

001)

•Th

e ex

iste

nce

of tw

o di

ffere

nt c

ross

-cou

ntry

edu

catio

n se

ries

(Bar

roan

d Le

e; K

yria

cou)

allo

ws

them

to v

alid

ate

the

accu

racy

of t

he d

ata.

Ass

ume

that

ther

e is

cla

ssic

al

mea

sure

men

t err

or in

bot

h se

ries.

A h

ighe

r cor

rela

tion

betw

een

the

two

serie

s gr

eate

r rel

iabi

lity

•Th

ese

data

ser

ies

are

quite

hig

hly

corr

elat

ed in

leve

ls,

but m

uch

less

so

in fi

rst d

iffer

ence

s. T

here

app

ears

to b

e su

bsta

ntia

l mea

sure

men

t err

or in

the

first

diff

eren

ced

educ

atio

n se

ries,

like

ly le

adin

g to

con

side

rabl

e at

tenu

atio

n bi

as in

the

grow

th re

gres

sion

s•

Rel

iabi

lity

ratio

cap

ture

s th

e ex

tent

of a

ttenu

atio

n bi

as

Eco

nom

ics

270c

: Lec

ture

11

36

Eco

nom

ics

270c

: Lec

ture

11

37

(2) K

rueg

er a

nd L

inda

hl(2

001)

•E

xam

ine

the

rela

tions

hip

betw

een

econ

omic

gro

wth

and

ed

ucat

ion

grow

th o

ver d

iffer

ent t

ime

perio

ds. S

ince

the

unde

rlyin

g st

ock

of e

duca

tion

is s

low

mov

ing,

ove

r sh

orte

r int

erva

ls Ω

is li

kely

to b

e la

rger

thus

exa

cerb

atin

g m

easu

rem

ent e

rror

•U

sing

the

best

dat

a, a

long

er ti

me

perio

d, a

nd c

orre

ctin

g fo

r lik

ely

atte

nuat

ion

bias

yie

lds

a re

turn

to a

dditi

onal

ye

ar o

f edu

catio

n at

tain

ed (o

n av

erag

e) o

f 30%

Eco

nom

ics

270c

: Lec

ture

11

38

Eco

nom

ics

270c

: Lec

ture

11

39

(2) K

rueg

er a

nd L

inda

hl(2

001)

•E

xam

ine

the

rela

tions

hip

betw

een

econ

omic

gro

wth

and

ed

ucat

ion

grow

th o

ver d

iffer

ent t

ime

perio

ds. S

ince

the

unde

rlyin

g st

ock

of e

duca

tion

is s

low

mov

ing,

ove

r sh

orte

r int

erva

ls Ω

is li

kely

to b

e la

rger

thus

exa

cerb

atin

g m

easu

rem

ent e

rror

•U

sing

the

best

dat

a, a

long

er ti

me

perio

d, a

nd c

orre

ctin

g fo

r lik

ely

atte

nuat

ion

bias

yie

lds

a re

turn

to a

dditi

onal

ye

ar o

f edu

catio

n at

tain

ed (o

n av

erag

e) o

f 30%

•Is

this

real

ly th

e so

cial

retu

rn to

edu

catio

n –

or d

ue to

en

doge

neity

/ om

itted

var

iabl

es?

Eco

nom

ics

270c

: Lec

ture

11

40

Eco

nom

ics

270c

: Lec

ture

11

41

(3) D

uflo

(200

1, A

ER

)

•Th

e id

eal e

xper

imen

t wou

ld ra

ndom

ize

educ

atio

nal

chan

ces

(by

vary

ing

cost

s, p

erha

ps) a

cros

s in

divi

dual

s,

as w

ell a

s ac

ross

regi

ons,

to e

stim

ate

exte

rnal

ities

•D

uflo

(200

1) is

the

mos

t rel

iabl

e es

timat

e of

retu

rns

to

educ

atio

n in

a le

ss d

evel

oped

cou

ntry

•S

tudi

es th

e im

pact

of a

mas

sive

sch

ool b

uild

ing

cam

paig

n in

Indo

nesi

a du

ring

the

oil-r

ich

1970

s. W

hat

impa

ct d

id th

is e

xpan

sion

hav

e on

late

r sch

oolin

g at

tain

men

t? O

n la

ter w

ages

?

Eco

nom

ics

270c

: Lec

ture

11

42

(3) D

uflo

(200

1, A

ER

)

•B

etw

een

1973

-197

8 th

e go

vern

men

t bui

lt 61

,000

ad

ditio

nal p

rimar

y sc

hool

s, d

oubl

ing

the

num

ber o

f cl

assr

oom

s in

the

coun

try. T

he n

umbe

r of t

each

ers

also

in

crea

sed

by 4

3% (!

) dur

ing

this

per

iod.

Thi

s co

uld

be

thou

ght o

f as

a sh

arp

drop

in th

e pr

ice

of p

rimar

y ed

ucat

ion

for m

any

hous

ehol

ds (e

.g.,

trave

l cos

ts)

•P

oor a

reas

wer

e su

ppos

ed to

be

targ

eted

, but

not

ex

actly

follo

win

g th

e fo

rmul

a –

scho

ols

wer

e su

ppos

ed to

be

bui

lt in

pro

porti

on to

the

num

ber o

f chi

ldre

n ou

t of

scho

ol in

197

3 (T

able

2)

Eco

nom

ics

270c

: Lec

ture

11

43

Eco

nom

ics

270c

: Lec

ture

11

44

(3) D

uflo

(200

1, A

ER

)

•Fo

cuse

s on

the

1995

labo

r mar

ket o

utco

mes

of m

en

born

bet

wee

n 19

50-1

972

(usi

ng th

e S

UP

AS

inte

rcen

sal

hous

ehol

d su

rvey

)

•D

iffer

ence

in d

iffer

ence

s st

rate

gy: c

ompa

re c

hild

ren

too

old

to b

enef

it to

thos

e w

ho b

enef

ited

from

the

prog

ram

, ac

ross

are

as w

ith m

ore

vers

us fe

wer

sch

ools

bui

lt

•IV

-2S

LS e

stim

atio

n:S

choo

l con

stru

ctio

n ed

ucat

iona

l atta

inm

ent

wag

es

Eco

nom

ics

270c

: Lec

ture

11

45

(3) D

uflo

(200

1, A

ER

)

•C

onsi

der t

he im

pact

of t

he p

rogr

am o

n sc

hool

atta

inm

ent

in th

e fir

st s

tage

:S

ijk=

c +

α j+

β k+

(Pj*T

i)γ+

(Zj*T

i)δ+

ε ijk

whe

re S

is th

e am

ount

of s

choo

ling

for a

n in

divi

dual

i, in

re

gion

jan

d ag

e co

hort

k. L

et c

be a

con

stan

t, α j

be a

n in

dica

tor f

or d

istri

ct o

f ind

ivid

ual b

irth,

βk

be c

ohor

t in

dica

tor v

aria

bles

, Pjd

enot

es p

rogr

am in

tens

ity in

re

gion

j, Z

jare

oth

er re

gion

al c

ontro

ls, a

nd T

is a

n in

dica

tor t

akin

g on

a v

alue

of o

ne if

the

indi

vidu

al w

as

youn

g en

ough

to b

enef

it fro

m th

e pr

ogra

m

Eco

nom

ics

270c

: Lec

ture

11

46

(3) D

uflo

(200

1, A

ER

)

•A

n id

entif

icat

ion

conc

ern

is th

e ex

clus

ion

rest

rictio

n:

othe

r tar

gete

d pr

ogra

ms

in th

e sa

me

area

s

•W

ould

ther

e ha

ve b

een

conv

erge

nce

/ div

erge

nce

acro

ss re

gion

s ev

en in

the

abse

nce

of th

e sc

hool

-bu

ildin

g pr

ogra

m?

•Th

e pe

rform

ance

of o

lder

coh

orts

in p

rogr

ams

dist

ricts

se

rves

as

a so

rt of

inte

rnal

con

trol t

o ca

ptur

e lo

cal t

rend

s

•B

otto

m li

ne: r

etur

ns to

sch

oolin

g in

Indo

nesi

a in

199

5 be

twee

n 5-

10%

per

yea

r

Eco

nom

ics

270c

: Lec

ture

11

47

Eco

nom

ics

270c

: Lec

ture

11

48

Eco

nom

ics

270c

: Lec

ture

11

49

Eco

nom

ics

270c

: Lec

ture

11

50

(3) D

uflo

(200

1, A

ER

)

•Lo

okin

g ah

ead

to n

ext w

eek:

If

educ

atio

n do

es h

ave

size

able

priv

ate

(and

per

haps

ev

en la

rger

soc

ial)

retu

rns,

sho

uld

publ

ic re

sour

ces

be

spen

t on

educ

atio

n in

less

dev

elop

ed c

ount

ries?

If s

o,

wha

t typ

es o

f inv

estm

ents

sho

uld

be m

ade?

•P

upil-

teac

her r

atio

s, te

xtbo

oks,

the

orga

niza

tion

of th

e sc

hool

sys

tem

/ te

ache

r’s u

nion

s.

•B

uild

ing

a se

nse

of n

atio

nal i

dent

ity a

nd c

ohes

ion

is a

so

cial

retu

rn to

edu

catio

n th

at m

ay b

e ve

ry im

porta

nt –

but i

s ha

rd to

est

imat

e w

ith m

icro

econ

omet

ricm

etho

ds

Eco

nom

ics

270c

: Lec

ture

11

51

Whi

tebo

ard

#1

Eco

nom

ics

270c

: Lec

ture

11

52

Whi

tebo

ard

#2

Eco

nom

ics

270c

: Lec

ture

11

53

Whi

tebo

ard

#3

Eco

nom

ics

270c

: Lec

ture

11

54

Whi

tebo

ard

#4

Eco

nom

ics

270c

: Lec

ture

11

55

Whi

tebo

ard

#5

Eco

nom

ics

270c

: Lec

ture

11

56