This paper estimates returns to schooling in Thailand using a regression discontinuity
approach applied to the change in compulsory schooling law in 1978. We find that the
compulsory schooling law played a role in enhancing human capital investment in the eve
of the rapid structural transformation in the 1980s, that the returns to schooling based on
our IV estimation was round 8%, while OLS somewhat overestimates (by 20%) such
returns, and that returns were higher in urban areas, in services (than in agricultural) sectors
and, surprisingly, in underdeveloped Northern regions. Our findings are in sharp contrast
with most of the recent studies exploiting similar institutional changes from developed
countries, where OLS estimates tend to under-estimate returns to schooling with the
implication that those school drop-outs (whose behavior is altered by compulsory
schooling) tend to have higher returns than those already in school even before the law
change. The conventional notion of ‘ability bias’ (which we confirm) are more likely to
arise in developing (but not so much in developed) countries possibly because parents
could be forced to keep only those (among many) of their children with higher ability in
school, thereby reinforcing (rather than compensating) inequality among children within
the household.