Education Accelerating the Agricultural Transformation: Panel Data Analysis of Rural Mexico

Economic theory shows that education is critical to economic development and to labor sector choice, yet there is little research to indicate the role school access plays in the agricultural transformation, the stage of development when the labor force shifts from primarily agriculture to non-agriculture. This paper identifies the impact of secondary school access on the probability of working in agriculture using 31 years of household panel data nationally representative of rural Mexico. The findings show that local secondary school access reduces the probability of working in agriculture at age 20 by 6.2 percentage points and the impacts grow as individuals age. The theoretical model shows that instrumenting for education using changes in school supply leads to inflated coefficient estimates when there are heterogeneous returns to education across labor sectors. This is consistent with the empirical literature, which typically finds greater returns to education using instrumental variables compared to OLS. Nevertheless, estimating the reduced form impacts of school supply on labor decisions has important implications for policy makers. The findings in this paper show that increased rural education is a significant contributor to the agricultural transformation, which leads to higher incomes in both the farm and non-farm sectors