Long-term consequences of temporal shocks on Mexican families

Type Working Paper
Title Long-term consequences of temporal shocks on Mexican families
Publication (Day/Month/Year) 2013
This paper studies long term implications of temporary macroeconomic shocks on education attainment and height using a unique panel dataset of Mexican households and historical GDP variation. Based on the identification assumption that macroeconomic shocks are exogenous to individuals decisions and cannot be foreseen, and a complex data construction we found that there is indeed a strong correlation between economic shocks and years of education for all school periods and cohorts born between 1950 and 1990, with differentiated magnitude depending on the shock’s timing. GDP contractions are related to an average reduction of around 0.053 years of education if the shock is realized while individuals were enrolled in secondary education, but its potential negative effect is about 0.165 years of schooling less if the negative shock is experienced while in college. Our exploration suggests that opportunity cost is the main driver of the decision to drop out of school when the economy experiences sudden temporary shocks. This distinction has important policy implications since decisions to drop out of school are made mostly by the student as they grow older, pointing out the need to develop policies targeted to students in junior high and higher levels during economic shocks in order to reduce the dropout rate.A strong and significant correlation is also found between macroeconomic shocks and height for children in low income households differentiated by gender: 0.5% reduction in height for boys during recessions, and 0.6% height increase during economic booms. Girls show no significant effect during bad economic conditions while their height increased on average 0.4% when GDP grew more than 6% annually.

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