SCHOOL QUALITY, CLUSTERING, AND GOVERNMENT SUBSIDY 49


apartheid regime favored such communities with high-quality facili- ties, equipment and resources. Vigorous fund-raising by parent bod- ies, including commercial sponsorships and fee income, have enabled many such schools to add to their facilities, equipment and learning resources, and expand their range of cultural and sporting activities. Since 1995, when such schools have been required to down-size their staff establishments, many have been able to recruit additional staff on governing body contracts, paid from the school fund.


As discussed in the introduction to this chapter, local resource availabil- ity is determined by historical and spatial factors, which are correlated in the current empirical context, given limited government subsidy. Choice of residential area is limited even now, so schools that are locally available to African children are largely formerly African institutions, many of which were historically disadvantaged and remain so. Schools in well-off areas can charge higher school fees, which not only finance school inputs but also allow them to avoid the enrollment of children from low-income families. A school fee represents the community’s capability to finance local pub- lic education. Yamauchi and Nishiyama (2005) analyzed the effect of local income distribution on the determination of school fees, showing that inequal- ity decreases the level of school fee. Thus low-income groups in a community pull down school fees, an outcome that decreases school quality for all chil- dren in the community.9


If school inputs depend on local resources, to what extent does govern- ment subsidy disconnect the linkage between local resources and school quality? How effectively can progressive subsidy change the linkage between school quality and historically constrained local resource availability? In this analysis, I use LER as a measure of school quality (resource) to explore how local resources, approximated by school fees, and government subsidy can jointly determine school quality.


There is a potential substitution (trade-off) between local and government resources, both of which determine school inputs. If government subsidy com- pletely equalizes unequal local endowments, school quality no longer depends on local resources. From a policy perspective, we are interested in knowing how differentially elastically our measure of school quality (LER) can change in response to changes in school fees versus government subsidy. In the following sections, we discuss the empirical framework, data, and results.


9 In different contexts, Foster and Rosenzweig (2001) and Chattopadhyay and Duflo (2004) show the importance of local governance in public investment decisionmaking.


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