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Household Income Dynamics and Investment in Children: Evidence from India

Author

Listed:
  • Sowmya Dhanaraj

    (Assistant Professor, Madras School of Economics)

  • Smit Gade

    (Good Business Lab)

  • Christy Mariya Paul

    (Madras School of Economics)

Abstract

Income shocks on households in developing countries are known to have an impact on the investment in the education of children. In this paper, we explore the effects of various income and expenditure shocks on educational investment and cognitive outcomes of children. In order to understand the mechanisms through which shocks affect children’s human capital we employ a range of dependent variables that capture input, output and outcome measures of education. We use three rounds of household-level panel data from Young lives survey conducted in two southern states of India, Andhra Pradesh and Telangana. Dynamic Panel data model using system General Method of Moments (GMM) estimator is used for investigating the impact of various income and expenditure shocks on children’s education and cognitive abilities. We find that idiosyncratic shocks like paternal health shocks and livestock loss translate into lower inputs of children’s education which in turn reduce their cognitive ability captured through vocabulary and mathematics tests. The results also suggest that these shocks mainly affect children’s development through decreased time spent in school.

Suggested Citation

  • Sowmya Dhanaraj & Smit Gade & Christy Mariya Paul, 2018. "Household Income Dynamics and Investment in Children: Evidence from India," Working Papers 2018-177, Madras School of Economics,Chennai,India.
    • Handle: RePEc:mad:wpaper:2018-177
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    References listed on IDEAS

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    2. Tsaneva Magda & Balakrishnan Uttara, 2021. "Local Labor Markets and Child Learning Outcomes in India," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 21(2), pages 723-750, April.
    3. Sagarika Dey & Amrita Nath, 2024. "Welfare shocks, coping strategies and safety nets: a study on rural households of Cachar District, Assam," Journal of Social and Economic Development, Springer;Institute for Social and Economic Change, vol. 26(3), pages 907-930, December.
    4. Shukla, Prakash Kumar & Reddy A, Bheemeshwar & Kumar, Dushyant, 2024. "Class in caste: Inequalities in human capital investments in children in India," International Journal of Educational Development, Elsevier, vol. 106(C).
    5. Andy Prasetyo Wati & Sheerad Sahid, 2022. "Factors Influencing Parents’ Awareness of Children’ Education Investment: A Systematic Review," Sustainability, MDPI, vol. 14(14), pages 1-13, July.
    6. Zeng, Yuan & Chen, Chunxiao & Wang, Chun & Zou, Jianke, 2025. "Education investment, social security, and household financial market participation," Finance Research Letters, Elsevier, vol. 77(C).

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    JEL classification:

    • I20 - Health, Education, and Welfare - - Education - - - General
    • I24 - Health, Education, and Welfare - - Education - - - Education and Inequality
    • I30 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General

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