Returns to Schooling in Thailand: Evidence from the 1978 Compulsory Schooling Law

Abstract

This paper estimates returns to schooling in Thailand by applying the regression discontinuity approach to the change in the compulsory schooling law in 1978. This law enhanced human capital investment on the eve of rapid structural transformation. The returns to schooling based on the instrumental variables estimation were around 8%, while ordinary least squares (OLS) overestimated such returns. Returns were higher for females, urban areas, the services sector, and underdeveloped regions. The findings contrast sharply with studies exploiting similar institutional changes in developed countries where OLS estimates underestimate returns to schooling, implying that former school dropouts tend to have higher returns than those already in school before the law change. Ability bias is more likely to arise in developing countries, possibly because parents might be forced to keep children only with higher abilities in school, reinforcing inequality among children within the household.