Picking up the Losses: The Impact of the Cultural Revolution on Human Capital Re-investment in Urban China

Using the Cultural Revolution of China as a quasi-experiment, this paper analyzes the long-run impact of interrupted education in the midst of economic transition with booming opportunities that highly reward education quali…cations. We focus on the remedial human capital investment decisions taken by individuals whose education has been interrupted by this shock. We …nd substantial increases in schooling levels among the adult cohorts as they invest in continuous education to make up for their interrupted schooling and to take advantage of new opportunities a¤orded by the economic transition. Estimates of the educational loss caused by the Cultural Revolution that ignore subsequent re-investments would not accurately measure the true losses in‡icted by this event. Keywords: Cultural Revolution, economic transition, interrupted education, human capital re-investment. JEL codes: I21, I23, J24, J31, P36. 1. Introduction Measuring the long run impact of large scale disruptions brought about by war or institutional shocks has been the subject of much recent economic research. Davis and Weinstein (2002) and Brakman, Garretsen and Schramm (2004) study the impacts of World War II bombing on city growth in Japan and Germany, respectively. They …nd that long run growth of cities are generally robust to large temporary shocks. Miguel and Roland (2006) study the e¤ect of Vietnam War bombing at a much …ner geographical level, and they do not …nd any signi…cant impacts on population density, poverty rates, infrastructure, or illiteracy. The literature has also considered the e¤ects of large shocks on human capital investment and the returns to education. Ichino and Winter-Ebmer (2004) examine the schooling of German and Austrian children during World War II; Maurin and McNally (2007) investigate the education disruptions caused by the 1968 student demonstrations in France; and Heaton (2008) looks at a unique episode of childhood schooling disruption in Prince Edward Island. In China, the Cultural Revolution during 1966-1976 upset the educational system for almost an entire decade, and its impacts on human capital investments and returns are considered by Deng and Treiman (1997), Meng and Gregory (2002; 2007), Giles, Park and Wang (2007), and Zhang, Liu and Yung (2007). These studies on human capital investments generally …nd a larger negative impact of temporary disruptions than do studies based on city growth data. Presumably, recovery in human capital investments takes a much more protracted period of time than does the recovery of physical infrastructure. In this paper, we focus on the decision to re-invest in human capital among adult cohorts following large disruptions in schooling opportunities in their earlier lives. Using the institutional shocks due to the Cultural Revolution in China, we provide evidence about how individuals picked