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Drought of Opportunities: Contemporaneous and Long-Term Impacts of Rainfall Shocks on Human Capital

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  • Manisha Shah
  • Bryce Millett Steinberg

Abstract

Higher wages are generally thought to increase human capital production, particularly in the developing world. We introduce a simple model of human capital production in which investments and time allocation differ by age. Using data on test scores and schooling from rural India, we show that higher wages increase human capital investment in early life (in utero to age 2) but decrease human capital from age 5 to 16. Children switch out of school into productive work when rainfall is higher. The opportunity cost of schooling, even for fairly young children, is an important factor in determining overall human capital investment.

Suggested Citation

  • Manisha Shah & Bryce Millett Steinberg, 2017. "Drought of Opportunities: Contemporaneous and Long-Term Impacts of Rainfall Shocks on Human Capital," Journal of Political Economy, University of Chicago Press, vol. 125(2), pages 527-561.
    • Handle: RePEc:ucp:jpolec:doi:10.1086/690828
    DOI: 10.1086/690828
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    More about this item

    JEL classification:

    • I25 - Health, Education, and Welfare - - Education - - - Education and Economic Development
    • J1 - Labor and Demographic Economics - - Demographic Economics
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development

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