Economic Growth and the Demand for Education: Is there a Wealth Effect?

Human capital investment in developing countries is thought to be significantly constrained by household resources. In this paper, we study the relationship between household resources and the demand for education using recently collected household survey data from Vietnam. Our data cover a period, 1993-98, of exceptional income growth in Vietnam, during which secondary school enrollment rose substantially. Using consumption expenditures as a proxy for household wealth, we find a positive and significant relationship between changes in wealth and changes in the demand for education. This wealth effect persists even after controlling for locality-specific factors such as changes in education returns and the supply and quality of schools, and for the opportunity costs of schooling.