Estimation of Educational Borrowing Constraints Using Returns to Schooling

Stephen V. Cameron and Christopher Taber

Journal of Political Economy, 2004, vol. 112, issue 1, 132-182

Abstract: This paper measures the importance of borrowing constraints on education decisions. Empirical identification of borrowing constraints is secured by the economic prediction that opportunity costs and direct costs of schooling affect borrowing-constrained and unconstrained persons differently. Direct costs need to be financed during school and impose a larger burden on credit-constrained students. By contrast, gross forgone earnings do not have to be financed. We explore the implications of this idea using four methodologies: schooling attainment models, instrumental variable wage regressions, and two structural economic models that integrate both schooling choices and schooling returns into a unified framework. None of the methods produces evidence that borrowing constraints generate inefficiencies in the market for schooling in the current policy environment. We conclude that, on the margin, additional policies aimed at improving credit access will have little impact on schooling attainment.

Date: 2004
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Citations: View citations in EconPapers (417)

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Persistent link: https://EconPapers.repec.org/RePEc:ucp:jpolec:v:112:y:2004:i:1:p:132-182

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