Development and History

Title: Transforming Rural Economies through Tertiary Education: Evidence from India

Abstract: In this paper, we estimate the impact of a higher share of village population who complete tertiary education on village prosperity in India. To causally identify the effect, we use data from the census of villages in India; we control for a host of geographic, historic and current covariates and use intra state variation. Further, we use historical catholic mission location as an instrumental variable-we show that the mean distance of villages to the nearest Catholic mission location circa 1911, when averaged for a sub-district, predicts the tertiary completion rate of a village and argue, through a myriad of robustness checks, that it doesn't affect village prosperity through any other channel. Further, we find that having tertiary educated people in a rural household raises per acre agricultural revenue from crops, increases crop diversification and makes households more likely to have access to technical advice. Some of the effect also comes from tertiary education impacting occupations-those with university degrees are more likely to be in skilled occupations both in agriculture and in the private job market. Some, though not all, of these jobs are outside the village that are accessed through daily commutes to urban areas. In the stylized version of structural transformation, a rise in education leads to a shift of labour from agriculture to non farm jobs and often involves migration of labour to cities, leading to higher urbanisation. Our analysis shows that a rise in the share of tertiary educated among the rural population can lead to village prosperity through a rise in agricultural productivity as well as non farm jobs within and outside the village.