Large-Scale Education Reform in General Equilibrium: Regression Discontinuity Evidence from India

Abstract:
The welfare consequences of large-scale government investments in education depend on their general equilibrium effects in both the labor market and the education sector. Prior literature has found it challenging to meaningfully account for and causally estimate these general equilibrium effects. I develop a novel general equilibrium model and derive sufficient statistics that capture the economic consequences of a countrywide schooling initiative implemented by the Indian government. I causally estimate the parameters of the model using a Regression Discontinuity design. The general equilibrium effects are substantial and have important implications for researchers and policymakers that consider scaling up micro-interventions.