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Externalities and the Social Return to Education in Indonesia

Author

Listed:
  • Losina Purnastuti

    (Yogyakarta State University)

  • Ruhul Salim

    (Curtin University)

Abstract

It is widely known that education provides economic benefits to individuals. However, education also has the potential to generate significant externalities. These external effects of education, in Indonesia, are the focus of the current paper. They are investigated using a local labour market (the province) approach. Significant externalities, as high as, or even much higher than, the private return to schooling, are documented, using both OLS and IV estimations. Sensitivity tests involving separate analyses for skill groups along the lines of Moretti (2004a) and Muravyev (2008), indicate that this finding is robust. The results thus strongly support the view that investing in education is more important for aggregate economic outcomes than it is for the individuals who do so. It appears that there is a clear role for the government fostering further expansion of education opportunities in Indonesia.

Suggested Citation

  • Losina Purnastuti & Ruhul Salim, 2015. "Externalities and the Social Return to Education in Indonesia," Australian Journal of Labour Economics (AJLE), Bankwest Curtin Economics Centre (BCEC), Curtin Business School, vol. 18(1), pages 53-74.
    • Handle: RePEc:ozl:journl:v:18:y:2015:i:1:p:53-74
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    References listed on IDEAS

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    Cited by:

    1. Sung Soo Lim & Jongwook Lee, 2022. "Aspirations, Human Capital Investment, and the Intergenerational Transmission of Poverty in Indonesia," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 162(1), pages 377-412, July.
    2. Cui, Ying & Martins, Pedro S., 2021. "What drives social returns to education? A meta-analysis," World Development, Elsevier, vol. 148(C).
    3. Virgi A. Sari, 2019. "Educational Assistance and Education Quality in Indonesia: The Role of Decentralization," Population and Development Review, The Population Council, Inc., vol. 45(S1), pages 123-154, December.
    4. David Roodman, 2022. "Schooling and Labor Market Consequences of School Construction in Indonesia: Comment," Papers 2207.09036, arXiv.org, revised Mar 2024.
    5. Choi, Seonkyung & Li, Huihui & Ogawa, Keiichi, 2023. "Upper secondary vocational education and decent work in Indonesia: A gender comparison," International Journal of Educational Development, Elsevier, vol. 101(C).

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    More about this item

    Keywords

    Externality; Earnings; Experience; Returns to schooling; Instrumental variables;
    All these keywords.

    JEL classification:

    • I21 - Health, Education, and Welfare - - Education - - - Analysis of Education
    • I22 - Health, Education, and Welfare - - Education - - - Educational Finance; Financial Aid
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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