Aggregation and the Estimated Effects of School Resources

Eric A. Hanushek, Steven G. Rivkin, Lori L. Taylor

NBER Working Paper No. 5548
Issued in April 1996
NBER Program(s):Labor Studies

This paper attempts to reconcile the contradictory findings in the debate over school resources and school effectiveness by highlighting the role of aggregation in the presence of omitted variables bias. While data aggregation for well-specified linear models yields unbiased parameter estimates, aggregation alters the magnitude of any omitted variables bias. In general, the theoretical impact of aggregation is ambiguous. In a very relevant special case where omitted variables relate to state differences in school policy, however, aggregation implies clear upward bias of estimated school resource effects. Analysis of High School and Beyond data provides strong evidence that aggregation inflates the coefficients on school resources. Moreover, the pattern of results is not consistent with an errors-in-variables explanation, the alternative explanation for the larger estimated impact with aggregate estimates. Since studies using aggregate data are much more likely to find positive school resource effects on achievement, these results provide further support to the view that additional expenditures alone are unlikely to improve student outcomes.

download in pdf format
   (2025 K)

email paper

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w5548

Published: Review of Economics and Statistics, 78(4), November 1996, pp.611-627. citation courtesy of

Users who downloaded this paper also downloaded* these:
Card and Krueger w3358 Does School Quality Matter? Returns to Education and the Characteristics of Public Schools in the United States
Glewwe, Hanushek, Humpage, and Ravina w17554 School Resources and Educational Outcomes in Developing Countries: A Review of the Literature from 1990 to 2010
Card and Krueger w5708 School Resources and Student Outcomes: An Overview of the Literature and New Evidence from North and South Carolina
Jackson, Johnson, and Persico w20847 The Effects of School Spending on Educational and Economic Outcomes: Evidence from School Finance Reforms
Hanushek and Rivkin w5547 Understanding the 20th Century Growth in U.S. School Spending
NBER Videos

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email:

Contact Us