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ABSTRACT: The debate on achieving universal primary education has largely ignored the role of the private sector. Yet private schools play an increasingly significant role in several low-income countries by offering affordable schooling options for even the rural poor. This paper uses data from Pakistan – a country that has experienced a mushrooming of mainstream, for-profit, and affordable private schools – to examine where such schools arise. We identify a large externality generated by the public sector: Private schools are set up in villages where there are pre-existing public girls’ high schools. Instrumental variable estimates suggest that a girls’ high school increases the likelihood of a private school in the village by 35 percentage points. In contrast, there is little or no relationship between private school existence and pre-existing girls’ primary or boys’ primary and high schools. The data support a supply side explanation: in an environment where female mobility is low due to cultural restrictions, women receive significantly lower wages in the labor market. Private schools locate in villages with a greater supply of local high-school educated women and pay them low wages. Our findings show that the private school wage-bill is indeed lower in villages with pre-existing girls’ high schools. These findings bring together three related concepts–the inter-generational externality of public schools on the existence of private schools, the ability of the private sector to use cultural labor market restrictions to its advantage and the prominent role of women as teachers. (Co-authored with Tahir Andrabi and Asim Khwaja)
*The Massachusetts Avenue Development Seminar (MADS) series is an effort by the Center for Global Development and The Paul H Nitze School of Advanced International Studies to take advantage of the incredible concentration of great international development scholars in the Metro Washington, DC area. The series seeks to bring together members of this community and improve communication between them.