Publication: Liquidity constraints, opportunity cost and post-secondary education. Evidence from Colombia
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2018-11-27
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Abstract
We provide new and clear evidence about the importance of liquidity constraints for post-secondary vocational education. Using two discontinuities that are used to allocate seats in free
vocational education and eligibility for educational grants, we exploit the relationship between OLS
and IV estimates of returns to education to test for the presence of short run liquidity in the fashion
of Card (2001). Eligibility to financial aid increases enrollment in vocational education between 8 to 13
percentage points. Furthermore, we find that when we instrument post-secondary schooling with
eligibility for financial aid IV estimates are larger than OLS estimates, suggesting that compliers to this
instrument are individuals with high returns to education but who were not enrolling in post-secondary education before due to liquidity constraints. However, when the instrument is not linked
with the cost of education IV estimates are not significantly larger than OLS estimates. Our analysis
focuses on access to free vocational education, hence our results shed lights on the importance of the
opportunity cost.