Does Economic Growth Increase the Demand for Schools? Evidence from Rural India, 1960-19991

Are low levels of schooling infrastructure—in particular, access to secondary schools— and low schooling investment solely the result of failed educational policies, or do they reflect the low school demand that stems from slow economic growth? This paper examines this question by analyzing a large data set in a framework that bases human capital investment on expected returns to schooling. It first shows that growth increases schooling inequality primarily because agricultural technological change increases schooling in landed but not landless households. But growth also affects other variables that influence schooling outcomes, of which child wages and school construction are considered. The analysis finds that the operation of the child labor market worsens the distributional impact of agricultural productivity on school investments across landless and landed households, as landless child labor substitutes for the labor of children from landowning households who have increased their attendance in schools. On the other hand, school construction increases most in areas where expected future productivity increases are highest. This paper also finds that closer proximity to schools differentially benefits landless households. The policy implication of this paper is that human capital can be increased, not only by education policies aimed at expanding school supply, but more importantly, by stimulating the demand for schooling through faster, sustained economic growth. 1 The research for this paper supported in part by grants NIH HD30907 and NSF, SBR93-08405 and by the Center for Research on Economic Development and Policy Reform, Stanford University.