Returns to Education in Nepal: Evidence from Living Standard Survey

Abstract

The empirical literature detailing the mechanisms underlying schooling and earnings is limited in the context of Nepal, a country
characterized by low enrollment rates and education levels, high illiteracy and a large disparity between male and female education. This
paper employed standard Mincerian earning function method to estimate returns to education using Nepal living standard measurement
survey 1995-96. The private rate of return for persons wage employed (both in agriculture as well as not in agriculture) are estimated for the
full sample and by gender, region of birth, age cohorts and province. Ceteris-paribus, one additional year of schooling confers a benefit of
6% only. The findings report wide earnings disparity across gender. Family background doesn’t influence significantly the innate ability of
siblings and thereby the earnings and education is not endogenous in the context of Nepal. Overall, the marginal return to education level is
consistent with the pattern observed world wide-higher returns to primary and higher education as compared to secondary education. By
region of birth, the rates of return are higher for born in urban relative to rural counterparts and by gender, the marginal rate of return for
female is higher than male for all education levels. The rate of return to primary for second cohort (36-50) is higher than the younger cohort
and the marginal rate of return for primary education is highest in Central province and Mid-eastern province for higher education.