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The Effects of Risk and Shocks on School Progression in Rural Indonesia

  • Christopher M Gilbert

    ()

  • Francesca Modena

    ()

Many empirical and theoretical studies explore the effects of ex-ante risk and ex-post shocks on child education. While scholars share the opinion that shocks reduce investment in education, there is no general agreement over the effects of uncertainty on child schooling. This work uses the Indonesian Family Life Survey to explore the effects of ex-ante risk and ex-post shocks on school progression in rural Indonesia. We develop a model of household school transition decisions from elementary to junior education and from junior to senior school considering different sources of uncertainty related both to parental and adult income, and under the assumption that withdrawal from school is permanent. In this way, temporary interruptions in child schooling have long term impacts on the child human capital. We show that there is no simple answer to the question of how uncertainty affects schooling decisions. Econometric results suggest that uncertainty about parental income for the time the child may be potentially at school increases the probability of attending junior school while uncertainty about expected earnings from education has a negative and significant effect only for senior school attendance. Finally, positive (negative) income shocks increase (decrease) the probability of attending junior school.

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Paper provided by University of Essex, Department of Economics in its series Economics Discussion Papers with number 679.

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Date of creation: 10 Nov 2009
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Handle: RePEc:esx:essedp:679
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