Reinforcement or Compensation? : Parental Responses to Children’s Revealed Human Capital Levels in Ethiopia

Fan, Wei and Porter, Catherine (2020) Reinforcement or Compensation? : Parental Responses to Children’s Revealed Human Capital Levels in Ethiopia. Journal of Population Economics, 33 (1). pp. 233-270. ISSN 0933-1433

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Abstract

A small but increasing body of literature finds that parents invest in their children unequally. However, the evidence is contradictory, and providing convincing causal evidence of the effect of child ability on parental investment in a low-income context is challenging. This paper examines how parents respond to the differing abilities of primary school-age Ethiopian siblings, using rainfall shocks during the critical developmental period between pregnancy and the first three years of a child’s life to isolate exogenous variation in child ability within the household, observed at a later stage than birth. The results show that on average parents attempt to compensate disadvantaged children through increased cognitive investment. The effect is significant, but small in magnitude: parents provide about 3.9% of a standard deviation more in educational fees to the lower-ability child in the observed pair. We provide suggestive evidence that families with educated mothers, smaller household size, and higher wealth compensate with greater cognitive resources for a lower ability child.