Estimates of the Return to Schooling in a Developing Country: Evidence from a Major Policy Reform in Turkey

This paper uses a major change in the compulsory schooling policy in Turkey – which increased the mandatory duration from five to eight years -- to estimate the causal effect of education on earnings. The policy reform brought about a substantial rise in schooling attainment due to the high dropout rates at the end of compulsory schooling, the duration of extension, as well as the spillover effects of the policy on non-compulsory schooling years. Our results show that the 2SLS estimates of the returns to education are much larger estimates than the OLS estimates. These results also constitute the first causal estimates of the returns to education in the Turkish context and one of the few in developing country contexts.