Association for Public Policy Analysis & Management

Increased economic opportunities have had mixed impacts on educational investment and attainment in developing countries. We examine the impact of increased access to markets on educational choices, focusing on India's flagship road construction program, under which 120,000 new roads have been built since 2000. We apply a panel fixed effects model and a regression discontinuity model, using rural census data on enrollment and infrastructure and administrative road program data. Wefind precise positive impacts of new roads on the enrollment of children at the margin of labor market entry. Children not only stay in school longer, but score higher and increasingly pass school completion exams. Effects are concentrated where the urban-rural wage gap is small, and close to zero where the wage gap is highest, indicating that the opportunity cost of school remains important. Effects are largest in the poorest villages, suggesting signicant liquidity effects. Income and return effects thus appear to dominate substitution effects in all but the most remunerative external labor markets.

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