78 2018 Education Economics from a Historical Perspective Ruth Schüler 78 2018 Education Economics from a Historical Perspective Ruth Schüler Herausgeber der Reihe: Clemens Fuest Schriftleitung: Chang Woon Nam Bibliografische Information der Deutschen Nationalbibliothek Die Deutsche Nationalbibliothek verzeichnet diese Publikation in der Deutschen Nationalbibliografie; detaillierte bibliografische Daten sind im Internet über http://dnb.d-nb.de abrufbar. ISBN: 978-3-95942-044-0 Alle Rechte, insbesondere das der Übersetzung in fremde Sprachen, vorbehalten. Ohne ausdrückliche Genehmigung des Verlags ist es auch nicht gestattet, dieses Buch oder Teile daraus auf photomechanischem Wege (Photokopie, Mikrokopie) oder auf andere Art zu vervielfältigen. © ifo Institut, München 2018 Druck: ifo Institut, München ifo Institut im Internet: http://www.cesifo-group.de I Preface This study was prepared by Ruth Schüler while she was working at the Ifo Center for the Economics of Education. It was completed in July 2016 and accepted as a doctoral thesis by the Department of Economics at the University of Munich in November 2016. It consists of four distinct empirical analyses on educational economics from a historical perspective, two chapters investigating the consequences of educational inputs and two chapters examining the determinants of educational provision and performance in nineteenth-century Prussia. The econometric analyses are based on census data, originally collected by the Royal Statistical Office of Prussia and partly digitized for this thesis. The thesis analyzes how education funding emerges in a federal system and how it affects prosperity and nation building in a setting of religious and ethno-linguistic heterogeneity. Chapter 2 provides evidence that educational spending accelerated economic development in the industrializing western regions of Prussia though not in Prussia’s agricultural East, suggesting that primary education instilled knowledge that permitted a shift to higher- skilled and higher-paid occupations in those regions that faced a sectoral change of the economy. Chapter 3 shows that a higher share of central state contributions in education increased pro-nationalist attitudes and to a smaller extent voter turnout. This indoctrination was especially successful in constituencies that were populated by a high share of either religious or linguistic minorities. Chapter 4 investigates the effects of linguistically polarized societies on educational provision in decentralized systems. Evidence for a negative effect of polarization on educational spending is found. Further analysis exploiting increased centralization shows that centralization can increase educational provision in polarized regions. Chapter 5 makes use of a natural experiment introducing centralized school monitoring against the background of the Kulturkampf, a cultural struggle between the Prussian state authorities and the Catholic Church. While the reform overall increases school performance, resistance from the targeted Catholic population is found. Keywords: Education, Public Spending, Prussian Economic History, Human Capital, Economic Development, Industrial Revolution, Nation Building, Indoctrination, Minorities, Polarization, Public Goods, Decentralization, Centralization, Resistance, Monitoring, Accountability JEL-Codes: I21, I22, H41, H52, H75, N13, N33 III Acknowledgements First and foremost, I am grateful to my supervisor Ludger Wößmann for his valuable comments and advice throughout all stages of this thesis. I also thank Davide Cantoni as my second supervisor who equally provided valuable feedback on all chapters of this thesis. Furthermore, I thank Oliver Falck for accompanying the first stage of my PhD and for being my third examiner. In particular I want to thank Francesco Cinnirella for joint work on Chapters 3 and 4 and for comments on the remaining parts of this thesis. Overall, I am grateful for his patience and encouragement. I thank the whole team of the Ifo Center for the Economics of Education and the Ifo Institute in general. In particular, I want to thank Nadine Fabritz who supported me while sharing an office and even beyond our time as colleagues. I am grateful to Jens Ruhose who always took time to discuss my work and who shared a lot of his academic experience with me. Furthermore, Katharina Candel-Haug, Anna Ciesielski and Sybille Lehwald played an important role in exchanging experiences across departments. I furthermore thank all student assistants who supported my work. In particular, I am grateful to Laura Schilz who assisted on Chapters 3 and 4 and who showed a great interest in my research. I want to thank Larissa Zierow who allowed me to keep close ties with the Ludwig- Maximilians-University of Munich and who was a great fellow student to discuss academic topics and life beyond academics. I also thank Martin Uebele, Ulrich Pfister and Maria Stanfors who encouraged me to pursue this path and continued supporting me while preparing my dissertation. Furthermore, Thilo Albers and Pawel Bukowski were great PhD companions and I especially want to thank them for advice on Chapters 4 and 5. My work was financially supported by an Economic History Association Exploratory Travel and Data Grant of 2014. Finally, I want to thank my Mum and Sister and Shaban Masengesho and my friends and family, overall Eva Tierwald, Andrea Liebler, Maren Bernlöhr, Arne Thomas, Nadine Sylla and my roommates in Munich for reminding me of my own way. I dedicate this work to my Father Johann-Georg Schüler and my Grandfather Günther Ullmann. V Education Economics from a Historical Perspective Inaugural-Dissertation zur Erlangung des Grades Doctor oeconomiae publicae (Dr. oec. publ.) an der Ludwig-Maximilians-Universität München Volkswirtschaftliche Fakultät 2016 vorgelegt von Ruth Schüler Referent: Prof. Dr. Ludger Wößmann Korreferent: Prof. Davide Cantoni, Ph.D. Promotionsabschlussberatung: 16. November 2016 VII Contents Introduction ............................................................................................................................... 1 1.1 Education Economics from a Historical Perspective .................................................. 1 1.2 Determinants and Consequences of Education ........................................................... 2 1.3 The Case of Prussia ....................................................................................................... 3 1.3.1 Socio-economic Developments at the Turn of the Twentieth Century ................... 3 1.3.2 The Prussian Educational System ............................................................................ 4 1.4 Related Literature .......................................................................................................... 5 1.5 Data ................................................................................................................................ 7 1.6 Methods.......................................................................................................................... 7 1.7 Outline of the Thesis ..................................................................................................... 8 Educational Inputs and Economic Development .................................................................. 11 2.1 Introduction ................................................................................................................. 11 2.2 Related Literature ........................................................................................................ 12 2.2.1 The Educational Production Function ................................................................... 13 2.2.2 Historical Evidence on Educational Inputs and Economic Development ........... 14 2.3 Historical Background ................................................................................................ 15 2.3.1 Economic Development ........................................................................................... 15 2.3.2 The Educational System and Economic Development .......................................... 16 2.4 Data .............................................................................................................................. 18 2.4.1 School Inputs ........................................................................................................... 18 2.4.2 Measuring Economic Development ........................................................................ 19 2.4.3 Controlling for Demographic and Developmental Characteristics ..................... 22 2.4.4 Descriptive Statistics ............................................................................................... 23 2.5 Estimating an Educational Production Function ....................................................... 26 2.5.1 OLS Model and Results ........................................................................................... 27 2.5.2 A Value-Added Approach ....................................................................................... 29 2.5.3 Results of Value-Added Approach .......................................................................... 33 2.5.4 Decomposing Educational Expenditures ............................................................... 37 2.5.5 Sectoral Shifts .......................................................................................................... 39 2.5.6 East Elbia as a Counterfactual .............................................................................