Shocks and Human Capital in Developing Countries

Title of dissertation: SHOCKS AND HUMAN CAPITAL IN DEVELOPING COUNTRIES Aaron Szott, Doctor of Philosophy, 2014 Dissertation directed by: Professor Judith Hellerstein Department of Economics I begin my dissertation by introducing the following two chapters. I start out by describing the basic theory underlying economists’ historical interest in the e↵ects of shocks in developing countries. I then briefly review the empirical literature on household responses to shocks and outline how it is reasonable to expect that even recurring, non-exotic shocks have substantial permanent e↵ects on a↵ected young peoples’ completed human capital stocks. Next, I describe the contributions that the following two chapters of this dissertation make and how they are similar with respect to their use of nationally representative household survey data, their policy relevance, and the way they use basic economic theory and contextual knowledge to uncover meaningful impacts of shocks on di↵erent groups of young people. Finally, I conclude this introductory chapter by considering whether or not it should be regarded as a surprise that shocks in developing countries can be allowed by households to impact a↵ected children’s human capital stocks the way they do, despite the large returns associated with human capital investments. The second chapter considers the permanent e↵ects of rainfall shocks on adults’ completed human capital stocks. Existing research suggests that health and education investments in children are a↵ected by aggregate income shocks, but there is considerably less evidence on what the e↵ects of many years’ worth of such shocks are on individuals’ completed human capital stocks. I contribute to this literature by studying the e↵ects of the number and timing of all the unusually wet and dry years over the first 21 years of rural West African individuals’ lives on their likelihood of being literate and their completed educational attainment. I use historical rainfall data merged with nationally representative household surveys conducted in 12 countries, and I find that both wet and dry years have substantial negative impacts on women’s human capital and smaller positive impacts on men’s: The average e↵ect of wet and dry rainfall shocks over the first 21 years of life is a 22 percent decrease in females’ likelihood of being literate and a 10 percent increase in males’. I argue that this pattern of results is consistent with existing research on how West African females and males work and acquire human capital. The third chapter provides evidence on how children in di↵erent types of households are a↵ected by food price shocks. While people in poor countries report that inflation is one of their primary concerns, there is not much evidence on how they are actually a↵ected by it. In particular, it is not clear how food (along with other) price inflation a↵ects individuals in net food producing and net food consuming households. I use four highly comparable household surveys collected in Egypt to examine how children’s weights-for-height evolved over time and in the face of the food price crisis of 2008, and I utilize data on region of residence and parents’ occupation to examine how changes over time di↵ered by household net food consumption status. I find that despite several years’ worth of solid economic growth in the run-up to 2008, most regionand parental occupation-based groups of Egyptian children’s weights-for-height had not increased at all since 2005 (for example). Quantile regression results reveal that the lightest children in 2008 were considerably lighter than the lightest children in 2005, and also that children in those households most likely to have been net food producing seem to have been more negatively a↵ected by high food prices than children in most other kinds of households. High food prices seem to have o↵set any possible beneficial e↵ects of growth for children in the poorest households. SHOCKS AND HUMAN CAPITAL IN DEVELOPING COUNTRIES