Is Education More Benficial to the Less Able? Econometric Evidence from Ethiopia

The paper investigates whether returns to schooling in Ethiopia vary according to the ability of individuals. To do so it adopts an instrumental variables quantile regression framework that allows for both endogeneity of schooling resulting from unmeasured ability, and possible heterogeneity in the impact of schooling. The empirical estimates indicate that education contributes more to the earnings of the less able individuals, consistent with the notion that education and ability are substitutes. By contrast, the relatively low (but still economically significant) returns to education at the higher end of the conditional earnings distribution suggest the importance of inherent ability or personal connections in securing high paying jobs.