Education policy reform, local average treatment effect and returns to schooling from instrumental variables in the Philippines

Abstract

A nationally representative dataset from the Philippines is used to derive returns to schooling estimates from instrumental variables, utilizing a supply-side intervention in the education market capable of generating significant changes in schooling. These estimates apply to a subgroup of, mainly, liquidity constrained individuals, in the spirit of the Local Average Treatment Effect (LATE) literature. Returns to schooling estimates which apply to a subgroup of individuals affected by policy intervention may be more interesting from a policy perspective than the return to the 'average' individual. The findings are consistent with other recent evidence suggesting that the causal effect of education, at least for certain subgroups of individuals, is as big or bigger than what is suggested by OLS estimates.