Skip to content
Licensed Unlicensed Requires Authentication Published by De Gruyter June 22, 2016

The Effects of School Closure Threats on Student Performance: Evidence from a Natural Experiment

  • Ming Ming Chiu , Sung Wook Joh EMAIL logo and Lawrence Khoo


We exploit a natural experiment to test whether school closure threats can increase staff effort and improve performance. The Hong Kong government overestimated post-1997-Handover mainland Chinese immigration and local births, creating excess capacity in many school districts. In 2003, with student enrollment falling to new lows (increasing cost per student), the government announced that it would close schools that were unable to recruit enough students. Since schools compete for students within their own district, the accidental excess capacity created closure threats that varied by district. Difference-in-differences analyses show that after initiation of this policy, student scores in heavily overbuilt districts were lower than scores in other districts and lowest in districts with the fewest students per class. Although closure threats were counterproductive for improving performance, the school closures eventually improved overall school quality, as typically, the lowest performing schools in each district closed.

JEL Classification: I2; G3; H3; D4; L2

Funding statement: This work was funded by the Institute of Finance and Banking at Seoul National University, Seoul National University Research Grant (for Humanities and Social Sciences), and Institute of Management Research, Seoul National University.


We thank the Hong Kong Education Manpower Bureau personnel for providing data for this project. We appreciate the helpful comments of David Autor, Russell Pittman, Hyung Kwon Jeong, Inho Lee, Yuk Yung Li, Keunkwan Ryu, and seminar participants at Asian Meeting of Econometrics Society, Seoul National University, Korea University, and City University of Hong Kong. We also appreciate the research assistance of Yik Ting Choi. Joh appreciates the Seoul National University Research Grant (for Humanities and Social Sciences) and the grants from Institute of Management Research and Institute of Finance and Banking at Seoul National University.


Aghion, P., M. Dewatripont, and P. Rey. 1999. “Competition, Financial Discipline and Growth.” Review of Economic Studies 66:825–52.10.1111/1467-937X.00110Search in Google Scholar

Baker, F. B. and S. H. Kim, (eds.). 2004. Item Response Theory: Parameter estimation techniques. Boca Raton, FL: CRC Press.10.1201/9781482276725Search in Google Scholar

Bertrand, M., E. Duflo, and S. Mullainathan. 2004. “How Much Should We Trust Differences-in-Differences Estimates?” Quarterly Journal of Economics 119:249–75.10.3386/w8841Search in Google Scholar

Brummet, Q. 2014. “The Effect of School Closings on Student Achievement.” Journal of Public Economics 119:108–24.10.1016/j.jpubeco.2014.06.010Search in Google Scholar

Card, D., M. Dooley, and A. Payne. 2010. “School Competition and Efficiency with Publicly Funded Catholic Schools.” American Economic Journal: Applied Economics 2 (4):150–76.10.3386/w14176Search in Google Scholar

Card, D., and A. B. Krueger. 1993. “Minimum wages and employment: A case study of the fast food industry in New Jersey and Pennsylvania. (No. w4509). National Bureau of Economic Research.”10.3386/w4509Search in Google Scholar

De la Torre, M., and J. Gwynne. 2009. When Schools Close: Effects on Displaced Students in Chicago Public Schools. Research Report. Consortium on Chicago School Research.Search in Google Scholar

Disney, R., J. Haskel, and Y. Heden. 2003. “Restructuring and Productivity Growth in UK Manufacturing.” The Economic Journal 113:666–94.10.1111/1468-0297.t01-1-00145Search in Google Scholar

Education and Manpower Bureau [EMB]. 1994. Code of Aid for Primary Schools. Hong Kong: Hong Kong Printing Department.Search in Google Scholar

[EMB]. 2003. Legislative Council Panel on Education: Consolidation of High Cost & Under-Utilized Primary Schools. LC Paper No. CB(2) 1826/02-03(01). Hong Kong: Hong Kong Printing Department.Search in Google Scholar

[EMB]. 2004. Legislative Council Panel on Education: Planning and Provision of Public Sector School Places. LC Paper No. 1058/03-04(01). Hong Kong: Hong Kong Printing Department.Search in Google Scholar

[EMB]. 2007. Report on Primary One Admission 2006. Hong Kong: Hong Kong Printing Department.Search in Google Scholar

[EMB]. 2015. Hong Kong: The Facts. Accessed June 21, 2015. in Google Scholar

Eisdorfer, A. 2008. “Empirical Evidence of Risk Shifting in Financially Distressed Firms.” Journal of Finance 63:609–37.10.1111/j.1540-6261.2008.01326.xSearch in Google Scholar

Engberg, J., B. Gill, G. Zamarro, and R. Zimmer. 2012. “Closing Schools in a Shrinking District.” Journal of Urban Economics 71 (2):189–203.10.1016/j.jue.2011.10.001Search in Google Scholar

Figlio, D. N., and C. E. Rouse. 2006. “Do Accountability and Voucher Threats Improve Low-Performing Schools?” Journal of Public Economics 90:239–55.10.3386/w11597Search in Google Scholar

Finn, J. D., G. M. Pannozzo, and C. M. Achilles. 2003. “The “Why’s of Class Size: Student Behavior in Small Classes.” Review of Educational Research 73 (3):321–68.10.3102/00346543073003321Search in Google Scholar

Gallego, F. 2013. “When Does Inter-School Competition Matter? Evidence from the Chilean “Voucher System.” The BE Journal of Economic Analysis & Policy 13 (2):525–62.10.1515/bejeap-2012-0032Search in Google Scholar

Goldstein, H. 2001. Multilevel Statistical Models. Sydney: Edward Arnold.Search in Google Scholar

Goldstein, J. R., T. Sobotka, and A. Jasilioniene. 2009. “The End of “Lowest‐Low” Fertility?” Population and Development Review 35:663–99.10.1111/j.1728-4457.2009.00304.xSearch in Google Scholar

Greene, J. P. 2001. An evaluation of the Florida A-Plus Accountability and School Choice Program. Center for Civic Innovation at the Manhattan Institute.Search in Google Scholar

Hanushek, E. A., and M. E. Raymond. 2005. “Does School Accountability Lead to Improved Student Performance?” Journal of Policy Analysis and Management 24:297–327.10.3386/w10591Search in Google Scholar

Hart, O. D. 1983. “The Market Mechanism as an Incentive Scheme.” Bell Journal of Economics 14:366–82.10.2307/3003639Search in Google Scholar

Hermalin, B. 1992. “The Effects of Competition on Executive Behavior.” RAND Journal of Economics 23:350–65.10.2307/2555867Search in Google Scholar

Horvat, E. M., E. B. Weininger, and A. Lareau. 2003. “From Social Ties to Social Capital.” American Educational Research Journal 40 (2):319–51.10.3102/00028312040002319Search in Google Scholar

Hoxby, C. M. 2000. “Does Competition Among Public Schools Benefit Students and Taxpayers?” American Economic Review 90:1209–38.10.3386/w4979Search in Google Scholar

Hsieh, C. -T., and M. Urquiola. 2006. “The Effects of Generalized School Choice on Achievement and Stratification.” Journal of Public Economics 90 (8):1477–503.10.1016/j.jpubeco.2005.11.002Search in Google Scholar

Imbens, G. M., and J. M. Wooldridge. 2008. “Recent Developments in the Econometrics of Program Evaluation.” Working paper no. 14251. NBER.10.3386/w14251Search in Google Scholar

Jensen, M., and R. Ruback. 1983. “The Market for Corporate Control: The Scientific Evidence.” Journal of Financial Economics 11:5–50.10.2139/ssrn.244158Search in Google Scholar

Johnson, S., P. Boone, A. Breach, and E. Friedman. 2000. “Corporate Governance in the Asian Financial Crisis.” Journal of Financial Economics 58 (1):141–86.10.1016/S0304-405X(00)00069-6Search in Google Scholar

Krieg, J. M. 2011. “Which Students Are Left Behind?” Economics of Education Review 30:654–64.10.1016/j.econedurev.2011.02.004Search in Google Scholar

Kirshner, B., M. Gaertner, and K. Pozzoboni. 2010. “Tracing Transitions the Effect of High School Closure on Displaced Students.” Educational Evaluation & Policy Analysis 32 (3):407–29.10.3102/0162373710376823Search in Google Scholar

Kurdek, L. A., and R. J. Sinclair. 1988. “Relation of Eighth Graders’ Family Structure, Gender, and Family Environment with Academic Performance and School Behavior.” Journal of Educational Psychology 80 (3):90–4.10.1037/0022-0663.80.1.90Search in Google Scholar

Lavy, V. 2010. “Effects of Free Choice among Public Schools.” Review of Economic Studies 77:1164–91.10.1111/j.1467-937X.2009.00588.xSearch in Google Scholar

Martin, S. 1993. “Endogenous Firm Efficiency in a Cournot Principal-Agent Model.” Journal of Economic Theory 59 (2):445–50.10.1006/jeth.1993.1028Search in Google Scholar

McEwan, P. J., M. Urquiola, and E. Vegas. 2008. “School Choice, Stratification, and Information on School Performance: Lessons from Chile.” Economia 8 (2):1–42.10.1353/eco.0.0003Search in Google Scholar

Meyer, B.D., W. K. Viscusi, and D.L. Durbin. 1995. “Workers’ compensation and injury duration: evidence from a natural experiment”. American Economic Review 322–40.Search in Google Scholar

Morck, R., A. Shleifer, and R. W. Vishny. 1998. “Management ownership and market valuation: An empirical analysis.” Journal of Financial Economics 68 (1):293–15.Search in Google Scholar

Nalebuff, B. J., and J. Stiglitz. 1983. “Information, Competition, and Markets.” American Economic Review 73:278–83.Search in Google Scholar

Neal, D., and D. W. Schanzenbach. 2010. “Left Behind by Design: Proficiency Counts and Test-Based Accountability.” The Review of Economics and Statistics 92 (2):263–83.10.3386/w13293Search in Google Scholar

Rockoff, J. E., and L. J. Turner. 2010. “Short-Run Impacts of Accountability on School Quality.” American Economic Journal: Economic Policy 2:119–47.10.3386/w14564Search in Google Scholar

Rothstein, J. M. 2006. “Good Principals or Good Peers.” American Economic Review 96:1333–50.10.1257/aer.96.4.1333Search in Google Scholar

Sandström, F. M., and F. Bergström. 2005. “School Vouchers in Practice: Competition Will Not Hurt You.” Journal of Public Economics 89 (2):351–80.10.1016/j.jpubeco.2004.03.004Search in Google Scholar

Scharfstein, D. 1988. “Product-Market Competition and Managerial Slack.” RAND Journal of Economics 19:147–55.10.2307/2555404Search in Google Scholar

Schmidt, K. 1997. “Managerial Incentives and Product Market Competition.” Review of Economic Studies 64:191–213.10.2307/2971709Search in Google Scholar

Shleifer, A. 2004. “Does Competition Destroy Ethical Behavior?” American Economic Review 94:414–18.10.3386/w10269Search in Google Scholar

Smart, A. 2003. “The Role of New Arrivals in Hong Kong’s Economic Imaginary.” In Approaching Transnationalisms, edited by B. S. A. Yeoh, K. P. Lai, M. W. Charney and T. C. Kiong, 39–59. New York: Springer US.10.1007/978-1-4419-9220-8_3Search in Google Scholar

Stiglitz, J., and A. Weiss. 1981. “Credit Rationing in Markets with Imperfect Information.” American Economic Review 71:393–410.Search in Google Scholar

Urquiola, M. 2006. “Identifying Class Size Effects in Developing Countries: Evidence From Rural Bolivia.” Review of Economics and Statistics 88 (1):171–7.10.1162/rest.2006.88.1.171Search in Google Scholar

Walker, A. 2004. “Constitution and Culture.” Discourse 25 (1):75–94.10.1080/0159630042000178491Search in Google Scholar

Wooldridge, J. M. 2013. Introductory Econometrics, 5th ed. Mason, OH: South-Western Cengage Learning.Search in Google Scholar

Published Online: 2016-6-22
Published in Print: 2016-10-1

©2016 by De Gruyter

Downloaded on 1.4.2023 from
Scroll to top button