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Between 1973 and 1978, the Indonesian government engaged in one of the largest school construction programs on record. Combining differences across regions in the number of schools constructed with differences across cohorts induced by the timing of the program suggests that each primary school constructed per 1,000 children led to an average increase of 0. 12 to 0.19 years of education, as well as a 1.5 to 2.7 percent increase in wages. This implies estimates of economic returns to education ranging from 6.8 to 10.6 percent. (JEL 12, J31, 015, 022)
The questions of whether investments in infrastructure can cause an increase in educational attainment, and whether an increase in educational attainment causes an increase in earnings are basic concerns for development economists. A large body of literature investigates the impact of schooling infrastructure on schooling, as well as the returns to education in developing countries [see George Psacharopoulos (1994) and John Strauss and Duncan Thomas (1995) for surveys]. Estimated returns to education are, in general, larger in developing countries than in industrialized countries. However, most of the existing studies are based on simple correlations between years of education and wages. Family and community background are important determinants of both schooling and labor market outcomes in developing countries, and the bias in estimates that treat an individual's education level as exogenous could be important.
This paper exploits a dramatic change in policy to evaluate the effect building schools has on education and earnings in Indonesia, a country where the GDP per capita in 1995 was only $720, 3.5 percent that of the United States. In 1973, the Indonesian government launched a major school construction program, the Sekolah Dasar INPRES program. Between 1973-1974 and 1978-1979, more than 61,000 primary schools were constructed-an average of two schools per 1,000 children aged 5 to 14 in 1971. Enrollment rates among children aged 7 to 12 increased from 69 percent in 1973 to 83 percent by 1978. This was in contrast to the absence of capital expenditure and a decline in enrollment in the early 1970's.
VI. Conclusion
The INPRES program led to an increase in educational attainment in Indonesia. On average, the estimates indicate that the program led to an increase of 0.25 to 0.40 years of...