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

TLDR

Rural poor in developing countries are increasingly connected to outside markets, raising the question of whether such connectivity crowds out or encourages educational investment. The study investigates how 115,000 new roads built under India's flagship program affect children's educational choices. The analysis uses data on these 115,000 roads to assess their impact on schooling. The roads increase school attendance and exam performance, with larger gains where local labor markets reward education and smaller gains where schooling has high opportunity costs. JEL codes: I25, I26, J24, O15, O18, R42.

Abstract

The rural poor in developing countries, once economically isolated, are increasingly being connected to outside markets. Whether these new connections crowd out or encourage educational investment is a central question. We examine the effects 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. Heterogeneity in treatment effects supports a standard human capital investment model: enrollment increases most when nearby labor markets offer high returns to education and least when they imply high opportunity costs of schooling. (JEL I25, I26, J24, O15, O18, R42)