The Effect of Grade Repetition on Returns to Schooling in Brazil

Christopher E. Dunn, University of Michigan

Returns to each year of educational attainment are thought to be quite high in the developing world. In Brazil returns range from 10 to 20 percent per grade. As this paper shows, however, returns to each year spent in schooling are significantly lower for many individuals because of grade repetition. As this repetition-adjusted return is a better indicator of human capital decisions, this information has important implications for public policy educational directives. This paper follows the 1970-74 Brazilian male birth cohort throughout their entire schooling history and into the start of their working years, using 1976 through 1999 PNAD data. The returns to schooling are allowed to differ by individual, according to probability that they pass any grade in school in a given year. The range in returns to schooling is shown as a potential economically rational explanation for wide variation in educational attainment even under efficient lending markets.