Right Peer, Right Now? Endogenous Peer Effects and Achievement in Victorian Primary Schools

This paper presents estimates of endogenous peer effects in pupils’ school achievement using data on national test scores, across multiple subjects and cohorts, for the population of primary school pupils in Years 3 and 5 (aged 7/8 and 9/10 years) in the Australian state of Victoria. Identification is achieved via school-grade fixed effects and instrumental variables (IV), exploiting plausibly random differences in the age distribution of peers and their gender mix across cohorts. The results provide strong evidence for the existence of endogenous peer effects across all subjects, with the IV estimates close in magnitude to the corresponding fixed-effects estimates, although less precisely estimated. In reading, for example, a one point increase in peers’ average test scores leads to between a .14 and .39 point increase in own test score, with similar ranges across other subjects.