The rapid emergence of private schooling in low-income countries raises questions about its consequences for the provision of public education. I use a rich longitudinal dataset of 112 schooling markets in rural Pakistan to provide empirical evidence of both parental and public schools' responses to private school expansion. High-achieving students switch out of the public sector following a private school entry, and sorting mostly occurs among younger cohorts of children. Public school performance remains unaffected, and I find no negative impact of private school expansion on public school students’ schooling outcomes in the long term.
This paper investigates how disparities in private and public education across different levels of schooling contribute to misallocation of talent in education. To understand whether public resources in education alleviate the financial constraints that poor parents may face, I develop an overlapping generation model based on Restuccia and Urrutia (2004) in which heterogeneous parents invest in the education of their children. I calibrate the model to the Brazilian economy and find that equalizing public spending per student across the levels of schooling increases aggregate output, consumption and welfare and generates a better selection of talented students in public universities.