Public schooling systems were often developed at the expense of religious schools, which undertook the bulk of education historically and still cater to large student populations worldwide. This paper examines how Indonesia’s long-standing Islamic school system responded to the construction of 61,000 public elementary schools in the mid-1970’s policy designed in part to foster nation-building and to curb religious influence in society. We study the market response to this policy using novel data on Islamic school construction and curriculum, identifying both short-run effects on exposed cohorts as well as dynamic, long-run effects on education markets. While primary enrolment shifted towards state schools, religious education increased on net as Islamic secondary schools absorbed the increased demand for continued education. The Islamic sector entered new markets to compete with the state, and increased religious curriculum at newly created schools. Our results suggest that the Islamic sector response undermined the nation-building impacts of mass schooling.

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