Child health is widely perceived to affect strongly schooling. But evidence is quite limited because numerous studies based on socioeconomic surveys fail to consider the endogeneity of child health, measurement error, and the impact of unobserved fixed and choice inputs. This paper shows that a priori the resulting biases may be positive or negative depending on which of a number of household allocation behaviors dominate and what is the nature of any unobserved choice inputs in educational production. Then illustrative empirical analysis, using rich data from Ghana, is presented, with the following results: (1) IV estimates based on observed family and community characteristics similar to those used in other studies suggest a downward bias in OLS. (2) Family and community fixed effects estimates suggest that the direction of the bias in standard estimates is upward and that the true effects of the range of observed child health on school success is not significant despite the strong association that leads to the appearance of an effect in standard OLS or IV estimates using family and community variables. (3) The usual assumption that there are no unobserved choice inputs in educational production probably leads to an upward bias in the estimated impact of child health on schooling even if there is good control for the endogeneity of child health and measurement error. (4) Child health also does not significantly affect child cognitive achievement through schooling attainment; consideration of the relations that usually have been used to investigate such a possibility, moreover, suggests that the coefficients that are usually estimated are not coefficients that represent the impact of child health on child schooling. (5) The preferred estimates control for unobserved family and community fixed effects and are robust to other estimation problems, so the standard estimates overstate the impact of child health in the observed range on child schooling success, which should strike a cautionary note about the interpretation of the many production function estimates in the literature, including, but not limited to those that focus on household production.
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Paper provided by University of Pennsylvania Center for Analytic Research and Economics in the Social Sciences in its series CARESS Working Papres with number
97-23.
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