Returns to Schooling in Urban China: New Evidence Using Heteroskedasticity Restrictions to Obtain Identification Without Exclusion Restrictions

Vinod Mishra and Russell Smyth

No 33-12, Monash Economics Working Papers from Monash University, Department of Economics

Abstract: We estimate the returns to schooling using matched employer-employee data from Shanghai. To do so, we use a novel identification strategy, proposed by Lewbel (2012), which utilizes a heteroscedastic covariance restriction to construct an internal instrumental variable (IV). We find that, for the full sample, the Lewbel (2012) IV estimation suggests returns to schooling generally in the range 25-30 per cent, which is higher than extant studies using conventional IVs. The findings in this study underpin the need for the Chinese government to continue to invest in education and help explain why private demand for education remains strong, despite rising cost.

Keywords: China; Schooling; Income; Lewbel (search for similar items in EconPapers)
JEL-codes: I25 J31 (search for similar items in EconPapers)
Pages: 31 pages
Date: 2012-09
New Economics Papers: this item is included in nep-edu, nep-lab and nep-tra
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Citations: View citations in EconPapers (4)

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