Gender Gap in Schooling and Wages: Effects of Foreign Capital and Education Subsidies

Abstract The paper develops a two-sector full employment general equilibrium model with endogenous schooling decisions. It aims to evaluate the effects of educational demand management policies on gender inequality in schooling and wage inequality. The results point towards the role of social norms in shaping parental discrimination against girls’ education, which accentuates gender gap in schooling due to gender-neutral education subsidy and rise in household income induced by foreign capital inflow. The two policies are favourable for gender wage gap if the agricultural sector is more female labour intensive than the manufacturing sector and returns to schooling are considerably higher for women than men. However, gender targeted education subsidy policies are in general beneficial with respect to both gendered schooling and wages. The paper contributes to the literature by identifying the role of factor intensity conditions and gender differentiated returns to education on the gendered schooling and labour market outcomes of demand side interventions in education. It also provides theoretical explanations to diverse impacts of these policies and suggests appropriate policy recommendations.