Investment in Education in Costa Rica: A Ladder out of Poverty?

Type Working Paper
Title Investment in Education in Costa Rica: A Ladder out of Poverty?
Publication (Day/Month/Year) 2009
The purpose of this dissertation is to answer the question of what has prevented many Costa Ricans parents from investing in their children’s education to a level that will allow them to rise out of poverty. Research conducted here relies mainly on the 2005 Costa Rican official household survey. The first empirical analysis conducted, based on Lars Ljungqvist’s model of convexity in the monetary private returns to education when credit markets for education are missing, demonstrates that the convexity of returns plays a key role in unskilled Costa Rican parents’ low expectations regarding future benefits of their children’s education and therefore in their decision to not invest in their education. Returns to education are convex and increase sharply only after secondary education has been completed, for all sectors, for all regions and for men and women. The second empirical analysis, of the relationship between demand for schooling and returns to education, shows that the convexity of returns influences the demand for schooling differently depending on whether or not parents are liquidity constrained, which in turn depends on whether they are either both unskilled or both skilled, respectively. Unskilled parents are not responsive to increases in the returns to skilled labor and when the returns to unskilled labor increase, i.e. the type of labor these parents themselves provide, they are less likely, compared to skilled parents, to increase the demand for schooling. Hence, these unskilled labor parents trade off their children’s investment in education, their future wealth, for the current consumption needs of their families. On the other hand, skilled parents, in contrast with those who are not, settle for a different and more successful livelihood strategy, responding to the returns to education, either iii skilled or unskilled, by investing in the education of their children. Two types of citizens are being clearly created: those educated and those uneducated, a process that, if it continues like this, will be difficult to reverse. Policy recommendations include the establishment of an educational subsidy focused on secondary education, and increase the employment opportunities and earnings of the unskilled workers.

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