Externality effects of education: Dynamics of the adoption and diffusion of an innovation in rural Ethiopia

Although farming methods in Ethiopia are still rather traditional, farmers in many areas do have the option of using new, higher-yielding crop varieties and some modern inputs, primarily chemical fertilizers. Rates of adoption of such innovations vary widely from one part of the country to another, allowing us to compare sites at different stages in the adoption and diffusion process. An understanding of the sources of agricultural productivity gains - and the role played by education - is particularly important in a country such as Ethiopia, where food security is tenuous and few children go to school. If the expected private returns from schooling for parents who make enrollment decisions are low and do not include externality effects of education upon site farm productivity, too little investment in education will occur. Section II outlines the ways in which different types of education may act to encourage the adoption and diffusion of innovations and summarizes some relevant literature. Section III describes the data. Evidence to show that social networks facilitate externality benefits of schooling is presented in Section IV, and the pattern of innovation diffusion within the sites is illustrated in Section V. Section VI outlines the econometric hypotheses and methodology and presents the results. Section VII concludes. © 2004 by The University of Chicago. All rights reserved.