This paper studies the role of higher education in economic development using a 1996 Brazilian reform that deregulated private colleges. I exploit cross-regional variation in pre-reform college scarcity to implement an instrumental variables strategy estimating the causal effect of rising college attainment. Higher college attainment raises income growth, reduces agricultural employment, and increases the prevalence and employment share of large firms. To quantify aggregate effects, I develop a multi-region structural model with endogenous educational choice and sectoral specialization of skilled labor. The model replicates the empirical estimates and attributes 22% of Brazil’s GDP growth and 46% of the decline in agricultural employment between 2000 and 2010 to reduced college access costs. These results highlight how higher education—by alleviating skill constraints and enabling firm expansion—can act as a powerful lever for structural transformation.

In this paper, we study how demand-side subsidies interact with the equilibrium price and quality level in Brazil's higher education sector. More precisely, we consider two policies that assist low-income students in attending private institutions: scholarships and subsidized student loans. First, we develop a quality measure for undergraduate programs using value-added models, where a student’s post-graduation outcome is determined by their pre-enrollment characteristics. To do so, we link multiple administrative datasets to track individual students before enrollment, during college, and after college. We consider two post-graduation outcomes: a standardized “exit” exam, which tests students’ major-specific knowledge, and income from a matched employer-employee database. We document key patterns and correlations of our quality measure and extensively validate it. Next, we develop a static equilibrium model of demand, pricing, and quality provision. We consider two counterfactuals: decreasing the supply of loans by 10% and decreasing the supply of scholarships by 10%. We find that decreasing the supply of scholarships by 10% reduces the enrollment among subsidized students by 8% and decreases the quality provided by private colleges, with a median change of -5% in value-added. There is substantial heterogeneity in the results. The reduction of subsidies decreases the college enrollment of relatively high-ability students who come from poor families. For-profit programs are the big losers from the policy experiment. Importantly, reducing subsidies indirectly affects all remaining college students because colleges invest less in quality.

Can the service sector drive productivity growth in developing economies? This paper argues that it can, but only when supported by a sufficiently skilled workforce. In contrast to manufacturing, productive non-tradable services scale by replicating complex operations across multiple locations -- a process that requires managerial oversight and, thus, high-skilled labor. We argue that shortages of human capital in developing countries constrain service-sector productivity growth by limiting the emergence of modern, multi-market firms. To test this hypothesis, we exploit a major higher education reform in Brazil that exogenously expanded access to college in the late 1990s. Using this natural experiment and leveraging matched employer-employee data along with nationally representative surveys, we provide causal evidence that increased local college attainment led to a disproportionate rise in employment at skill-intensive, multi-market service firms, accompanied by wage gains and broader labor reallocation toward the service sector. We interpret these findings through a theoretical framework in which skilled labor is a necessary input for firm expansion across space. Together, our results highlight the central role of human capital in enabling service-led structural transformation and position multi-market firms as key engines of productivity growth in modern developing economies.

In many developing countries, corruption is a pervasive phenomenon, widespread across districts and local officials. This paper studies the impact of corruption on the spatial distribution of economic activity and its dynamic effects on local and aggregate growth. Our investigation focuses on a federal policy in Brazil that randomly selected local governments for audits on the use of public funds received through transfers. While evidence suggests this program effectively reduced corruption and enhanced political accountability, its implications for firms remain less understood. For example, diminishing corruption could optimize the allocation of procurement contracts by prioritizing efficiency over political connections, fostering competition. Building upon Colonnelli and Prem (2022), we use a difference-in-differences analysis to reveal the positive impact of corruption reduction on local economic activity. As all eligible municipalities were aware of the policy, this approach captures the relative effects of audits on firm outcomes. To discern the policy's aggregate effects, we develop a spatial model wherein firms' entry decisions and choice of production locations are endogenously determined. Variations in corruption levels influence relative productivity and potentially lead to misallocation. In our model, audited municipalities witness a more significant decrease in corruption, creating favorable conditions for business initiation. We derive equations from the model that directly correspond to the empirical difference-in-differences coefficient. This relationship between the model's structural parameters and empirical findings enables us to estimate the upper and lower bounds of the policy's aggregate impact.