Education Quality and Returns to Schooling: Evidence from Migrants in Brazil

Abstract

We provide a new education quality index for states within a developing country using 2010 Brazilian data. This measure is constructed based on the notion that the financial returns obtained from an additional year of schooling can be seen as being derived from the value that market forces assign to this education. We use migrant data to estimate returns to schooling of individuals who studied in different states but work in the same labor market. We find very heterogeneous educational qualities. In fact, Brazil displays cross-state educational quality variation almost as great as that observed across countries. We compare our index with standardized test scores, educational outcome variables, and public expenditure per schooling stage at the state level, producing new evidence related to education in a large developing country. We conduct an education quality–adjusted development accounting exercise for Brazilian states and find that human capital accounts for 26%–31% of output per worker differences. Adjusting for quality increases human capital’s explanatory power by 60%.