divided by school enrollment at the beginning of the year), and continuation rates (the number of students beginning a given school level divided by those who graduated in the previous school year from the earlier school level) in Mexico. Over the period she analyzes, 1977 to 1994, Mexico saw two sharp macroeconomic contractions: in 1982-83, when per capita GDP fell by 9 percent, and in 1986, when per capita GDP fell by 6 percent. Binder shows that school retention and continuation rates in Mexico over the period were generally counter-cyclical, with sharp positive spikes in outcomes corresponding to the periods when the economy was contracting.<sup>12</sup> McKenzie (2003) studies the effect of the Mexican Peso crisis of 1995-96 on a variety of outcomes, including school enrollment rates. The Peso crisis was a sharp setback to aggregate living standards: GDP per capita fell by 8 percent, and real wages contracted by 21.7 percent. McKenzie uses the _Encuesta Nacional de Ingreso-Gasto de los Hogares_ (ENIGH) household surveys for 1992, 1994, 1996 and 1998 to estimate the effects of the crisis on schooling. He uses a differences-in-differences approach to test for changes in school enrollment leading up to and after the crisis. McKenzie shows that school enrollment grew by more between 1994 and 1996 (the crisis period) than either between 1992 and 1994 (before the crisis) or between 1996 and 1998 (after the crisis). Put differently, after accounting for underlying trends, enrollment rates were significantly higher in the crisis year, 1996, than they were in either the pre-crisis or postcrisis years. Table 1, reproduced from his paper, shows that the increase in the growth rate of enrollment between 1994 and 1996 (relative to changes over the 1992-94 period) is particularly apparent among boys aged 15-20. The same group also saw significant declines in enrollment between 1996 and 1998 (relative to changes between 1994 and 1996). Similar, if somewhat less clear, patterns are also apparent for girls in this age group.

The economic crisis in Peru in the late 1980s was particularly deep. As a result of macroeconomic mismanagement in 1985-87, GDP per capita fell by 10.5 percent in 1988, 13.4

> 12 Binder also conducts an econometric analysis in which school retention and continuation rates in year t are regressed on log GDP levels in the same year, percentage changes in GDP in the calendar year in which a school year was begun, percentage changes in GDP in the year in which a school year was finished, and a time trend. She interprets the coefficient on log GDP, which tends to be positive and significant in most specifications, as the “income” effect, and the coefficient on GDP changes, which tends to be negative and significant in most specifications, as the “price” effect. It should be clear that these definitions of “income” and “price” effect do not correspond to the notions of income and substitution effect which are more commonly used in the literature, and which we adopted in Section 2. In any case, there is no clear pattern whereby the coefficient on log GDP is larger or smaller than the coefficient on GDP changes in Binder’s regressions.

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