Income and Schooling: Evidence from International Oil Price Shocks

Whereas existing literature has documented strong correlations between national incomes and measures of schooling attainment, causality has been hard to pin down. In this paper we explore from an empirical perspective whether income windfalls cause schooling. We do so by focusing on within-country variation and exploiting variation in the international oil price multiplied by countries’ net export shares of oil in GDP as an instrument to extract exogenous variation in countries’ national incomes. We detect a significant positive effect of such income windfalls on various measures of schooling attainment, more so in poor countries.