Endogenous schooling, school proximity and returns to rural schooling in Northwestern China

Abstract

Purpose The purpose of this paper is to estimate the returns to rural schooling in China, addressing both endogeneity in rural individuals’ schooling and self-selection into off-farm work. Design/methodology/approach This paper exploits geographical proximity to rural secondary schools to create instrumental variables (IV) for individuals’ years of schooling. It addresses both endogenous schooling and self-selection using the two-step procedure developed in Wooldridge (2002, p. 586). Findings The preferred IV estimate of schooling returns, 7.6 percent, is considerably higher than most previous estimates found in rural China. Originality/value This paper is among the few papers that examine returns to rural schooling in China while simultaneously addressing both endogeneity in individuals’ schooling and self-selection into off-farm work. Its findings suggest that rural education in China is potentially able to generate a respectable level of economic returns if policies are designed to provide greater school accessibility to rural individuals.