Liquidity constraints, opportunity cost and post-secondary education. Evidence from Colombia

We provide new and clear evidence about the importance of liquidity constraints for post-secondary vocational education. Using two discontinuities that are used to allocate seats in free vocational education and eligibility for educational grants, we exploit the relationship between OLS and IV estimates of returns to education to test for the presence of short run liquidity in the fashion of Card (2001). Eligibility to financial aid increases enrollment in vocational education between 8 to 13 percentage points. Furthermore, we find that when we instrument post-secondary schooling with eligibility for financial aid IV estimates are larger than OLS estimates, suggesting that compliers to this instrument are individuals with high returns to education but who were not enrolling in post-secondary education before due to liquidity constraints. However, when the instrument is not linked with the cost of education IV estimates are not significantly larger than OLS estimates. Our analysis focuses on access to free vocational education, hence our results shed lights on the importance of the opportunity cost. ; We thank the Jóvenes en Acción impact evaluation team in Econometría S.A. and SEI lead by Marta Isabel Gutierrez. We also want to thank the collaboration of the team in the government offices of DPS, SENA and JeA who provided the data and insights about the institutional context.