The economics of Islamic education: evidence from Indonesia.

Abstract

This thesis is about the economics of Islamic education in Indonesia. It consists of three core chapters that examine impacts of Islamic education at different levels: individual, regional and local community levels. These chapters cover the relative disparity of educational quality across Islamic schools and its impact on regional income per capita growth, the impact of government intervention in Islamic schools on graduates’ earnings and schooling, and the positive externalities that might arise from the presence of Islamic boarding schools. This work adds to our understanding on how Islamic schools function as well as how Islamic education could be improved in the future. The first academic contribution of this thesis lies in its methodology in dealing with limited samples. In the absence of access to data from a survey, to a randomization project that is specifically designed to capture the research objective or to long time series data from the statistics office, this study applies some novel methods. It conducts a Monte Carlo simulation to predict the magnitude of small sample bias from a very short panel analysis. In another chapter, due to unavailability of relevant time series data, the study exploits information from cross-sectional data to implement the difference-in-difference estimator. In another chapter, a series of robustness tests and econometrics strategies are implemented to control for selection bias. The thesis also contributes to long-debated issues such as determinants of religiosity, determinants of economic growth and school completion factors by providing empirical results and showing that different samples can produce uncommon findings contradicting expectations. It also offers empirical evidence of the significance of variables that have never been considered before in the literature, such as the effect of religious education on income growth; the effect of the characteristics of religious leaders and the institutions they lead on socio-economic behaviour; and the formation of social capital of the surrounding community. More specifically, the first core chapter attempts to analyse the relationship between religious education, the quality of education and regional income per capita across provinces in Indonesia. Using nationally comparable examination scores based on 2003-2005 provincial data, the picture of Islamic education in Indonesia at junior secondary schools is education with not only low academic achievement but also unequal performance. In contrast, non-Islamic schools including public non-religious schools have shown significant improvement in equality of performance across provinces, most likely due to low performers being supported by increased involvement of local governments in this decentralisation era. The overall empirical results showed that quality-inclusive growth model specification is preferred to avoid upward bias. I find that the social marginal effect of years of schooling is only twothirds of the estimate using standard analysis. Nevertheless, the relative importance of the quantity of education is still evident. Classifying education into two types – Islamic and non-Islamic education—suggests that while there is no difference between rates of return to the quantity of new human capital stock from Islamic education and non-Islamic education background, the quality-augmented new labour stock from non-Islamic education background is more significant than new stock from Islamic education background for regional income per capita growth. However, once we take into account inequality, the difference disappears. This implies that the different contribution of quality-adjusted new stock between human capital with religious and non-religious education background might be largely due to different inequalities across provinces. The second core chapter attempts to oversee the impacts of government intervention in religious education on schooling and individual earnings. In 1975, the Indonesian government regulated the primary to secondary curricula of Islamic schools or Madrasah in Indonesia. The regulation required 70% standard education and 30% religious education. But the position of Madrasah as regular schools with Islamic characteristics (sekolah umum berciri khas agama Islam) was not integrated into the Indonesian education system until 1989. While the regulation was meant to standardise the quality of Madrasah it was perceived by some Islamic education practitioners as secularism within Islamic education. It has been questioned whether this has brought positive impacts on schooling and on the Islamic school graduates’ competitiveness in the labour market relative to graduates from other types of schools including public and non-Muslim private schools. Using data from the 2000 Indonesian Family Life Survey (IFLS), eleven years after its introduction the reform has not improved either educational outcomes nor individual earnings of Madrasah graduates. But it has contributed to the promotion of nine year basic education in rural areas. The third core chapter examines the socio-economic significance of religious boarding schools (Pesantren) in communities in Indonesia. More specifically, I look at the role of Pesantren leaders or Kyai and various institutional aspects of the Pesantren on three variables of interests: religiosity, earnings and demand for religious education. Using data from a survey of around 500 heads of households across nine Pesantren in Indonesia, it finds local community benefits from more intense interaction with the local religious leaders of Islamic boarding schools (Pesantren) than does the external community. But the direct benefit of living close to Pesantren only matters for religious participation, not for earnings or demand for religious education. However, the study finds that religiosity is more positively significant for earnings of the community surrounding the Pesantren, probably due to networking effects. Hence, community involvement of religious leaders can indirectly and positively affect earnings of the surrounding community and affect demand for religious education. The overall results suggest that Pesantren contribute to the formation of social capital, particularly in the form of religiosity, which contribute to the improved welfare of the surrounding community.