Does Money Matter? The Effect of Private Educational Expenditures on Academic Performance

The causal relationship between educational investments and student outcomes continues to attract attention. The majority of studies have examined the effectiveness of public school expenditures on student outcomes. This paper attempts to shed light on the impacts of educational inputs by examining a private educational investment—private tutoring that is widely employed by South Korean parents as a supplement to public school education. To deal with the endogeneity of private tutoring expenditures, the paper relies on instrumental variables (IV) methods, exploiting a student’s birth order as a source of identification. Based on the IV methods, the paper shows that a 10 percent increase in expenditure leads to a 0.56 percentile point improvement in test score. Such an estimated effect is modest and comparable to the effect of public school expenditures on earnings estimated by previous studies. JEL Classification : I20, C30