The More The Better? The E®ect of Private Educational Expenditures on Academic Performance: Evidence from Exogenous Variation in Birth Order

Abstract

The question of the causal relationship between educational expenditures and student outcomes continues to attract attention. Empirically establishing the causality, however, is proven di±cult due to the endogeneity of educational investment decisions. To shed light on the causality from educational investments to outcomes, this paper examines the e®ect on standardized test scores of private tutoring which is widely employed by South Korean parents in order to supplement public school education. To deal with the endogeneity of expenditures on tutoring, this paper exploits a student's birth order as a source of identi？-cation. Using IV methods, the paper shows that a 10 percent increase in private educational expenditure leads to a 0.67 percentile improvement in test score. The estimated e®ect of private educational expenditures is comparable to the e®ect of public school expenditures on earnings estimated by previous studies.