Educational Investment Responses to Economic Opportunity: Evidence from Indian Road Construction

The rural poor in developing countries, once economically isolated, are increasingly being connected to outside markets. Whether these new connections crowd out or encourage educational investment is a central question. We examine the effects on educational choices of 115,000 new roads built under India’s flagship road construction program. We find that children stay in school longer and perform better on standardized exams. Heterogeneity in treatment effects supports a standard human capital investment model: enrollment increases most when nearby labor markets offer high returns to education and least when they imply high opportunity costs of schooling. (JEL I25, I26, J24, O15, O18, R42)