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Title

Altruistic Parenting, Intergenerational Transmission, and Human Capital Accumulation

Date of Award

Spring 5-15-2012

Author's School

Graduate School of Arts and Sciences

Author's Department

Economics

Degree Name

Doctor of Philosophy (PhD)

Degree Type

Dissertation

Abstract

What causes different income levels and development paths among countries? This dissertation investigates the role of human capital in the process of development. In particular, this dissertation focuses on how human capital is formed, i.e. how altruistic parents make human capital investments for their children, and how human capital affects the income and welfare of current generations as well as that of future generations through intergenerational linkage.

This dissertation consists of three chapters. The first two chapters focus on health-related human capital. The first chapter, entitled as "Does Health Matter? A Quantitative Analysis of Cross-country Income Differences," studies the importance of health in explaining cross-country income differences. Standard neoclassical growth theory requires implausibly large productivity gaps in order to explain cross-country income differences. This chapter illustrates the significant role played by health factors in such accounting, and argues that a poor health environment 1.) makes health investment less rewarding, 2.) affects the parents' attitude towards investment in children, and 3.) retards human capital accumulation and output growth. By estimating health capital across countries and calibrating the model to fit U.S. economic data, I was able to calculate the required TFP gaps to account for the cross-country differences in relative outputs. I found that after introducing health-related human capital into the output production function, the required TFP gaps shrink substantially, and health-related human capital can explain roughly 8-9% of the income differences across among countries. The results also indicate that, while education is important in explaining cross-country income differences, health investment efficiencies and the variations in the health conditionsare vital as well, especially for poor nations in sub-Saharan Africa and South Asia.

Why have some poor countries been able to take off while others remain mired in poverty? It is observed that (1) with similar or higher levels of educational attainment, trapped countries tend to have poorer health conditions compared to those of the initially poor countries that later take off; and (2) improving health conditions in poor countries usually involves large scale investment, and such resources can be easily misallocated. The second chapter, "Health, Education and Development" studies how the health-related institutional barriers lead to different development paths across countries. An overlapping-generations model was constructed, with human capital separable in health and knowledge, and accounting for health-related institutional barriers in the economy. I show both theoretically and numerically that when the magnitude of the institutional barriers is too severe, the individuals' incentives to invest in the future are suppressed, and the economy ends up in a poverty trap with no health investment and poor individual health. The model is calibrated to fit the U.S. economy, a group of countries that are still in the poverty trap (Bangladesh, Kenya and Nigeria), and initially poor countries that later took off (China and India). The calibration results show that, although low among the countries in the current study, the U.S. economy still has a health-related institutional barrier of around 15%. The trapped economies all have large barriers ranging from 62% to 72% under which the incentive to invest in health is severely reduced. For China and India, the magnitudes of the barriers are large but not large enough to throttle the willingness to invest in health.

Rather than focusing on health, the third chapter, "Altruistic Parents' Decision: Dowry or Education?" examines how Taiwanese parents choose between providing a dowryand educational investments for their daughters, and how this decision affects the daughter's bargaining position and the welfare in the marriage. A simple model is provided in which parents make optimal decisions for their daughters. The model predicts that with few market opportunities available for women, return on human capital is low and parents will choose to provide a dowry over an education. In modern society, when return on human capital is high, dowry becomes an inferior way of providing an inheritance. I provide a Constructed time series of dowry, education and market opportunities using the Panel Study of Family Dynamics (PSFD) in Taiwan. Empirical evidence is also provided supporting the view that parents substitute dowry for education, and vice versa.

Language

English (en)

Chair and Committee

Ping Wang

Committee Members

B. Ravikumar, Costas Azariadis, James Bullard, Jr-Shin Li, Rodolfo Manuelli, Juan Pantano

Comments

Permanent URL: https://doi.org/10.7936/K7833PZQ

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