Schooling and Income Effect of Education Development in China: Evidence from the National Compulsory Education Project in China’s Poor Areas

Abstract

Whether investing in hardware for basic education is conducive to the long-term development of school-age children is a controversial issue in academic literature. Based on the data from the 2013 Chinese Household Income Project (CHIP), this paper uses the difference-in-differences (DID) method with cross-sectional data to evaluate the policy effects of China’s National Compulsory Education Project for Poor Areas launched in 12 central provinces in the mid-1990s. We fi nd that through the construction, renovation, or expansion of primary and junior middle school buildings and purchase of teaching equipment, this project achieved on its goal of “raising education levels”: the years of schooling of the benefi ciaries after they reached adulthood increased signifi cantly by roughly 0.7 years. However, the project was not found to have an “income effect”, i.e., the income of the benefi ciary children did not increase with the increase in schoolings. The econometric analysis shows that although the project could raise the income levels of the children in adulthood, it did not significantly increase the likelihood of the beneficiary groups moving to cities as migrant workers. Limited by the late development of secondary and tertiary industries in poor counties, the benefi ciaries who stayed locally were less likely to engage in non-farm occupations, and thus their income did not signifi cantly increase. This indicates that policies like the Compulsory Education Project designed to improve school hardware in a short period of time can effectively promote the development of basic education in poverty-stricken areas. Nonetheless, to achieve the fundamental goal of raising income while increasing schooling, it is also necessary to actively guide people moving to cities to work as migrant workers and bolster the development of local secondary and tertiary sectors.