Decomposing Intergenerational Income Elasticity

The gender-differentiated contribution ofcapital transmission in rural Philippines

Leah Bevis & Christopher B. Barrett, Cornell UniversityMonash University Workshop on Poverty and Inequality

May 21, 2013

Background• Equality of socio-economic opportunity

o Often proxied by intergenerational income elasticity (IGE) estimates:

• Multiple possible pathways behind IGE and the pathways matter to policy design:o Intergenerational transmission of educationo Intergenerational transmission of healtho Intergenerational land transfers o Assortative marriageo Migrationo Productivity due to correlated unobservables

• Yet there has been very limited exploration of multiple possible pathways, esp. in developing countries

ijjoij eybby 1

2/17

• How high is IGE/socio-economic mobility in rural Philippines?

• Which pathways account for estimated IGE?

• Do these pathways vary by child or parent gender?

• Does migration affect capital transmission or income transmission?

Core questions

3/17

Conceptual ModelPer Becker-Tomes model, child adult income results from parental investment in child capital stocks and productivity.

Parental capital stocks may affect child capital stocks in 3 ways:

1) PC directly transmits to child capital (e.g., health, land)

2) PC affects parental income, which constrains investment in child capital (e.g., education) given borrowing constraints

3) PC affects parental preferences and expectations, which affect investment in child capital (e.g., marriage, education)

Also may be intergenerational productivity correlation due to genetics, natural/social environment, unobserved skills, etc.

Parent Land

Parent Education

Parent Productivity

Parent Health

Parent Income

Child Land Child /Spouse Education

Child Productivity

Child Health

Child Income

Conceptual ModelNaïve regression vs. pathway decomposition

Capital transmission pathways

Income transmission pathways

1) Estimate naïve IGE, w/ and w/o correction for measurement error in and transitory shocks to parent income (instrument w/initial period parent expenditure). Strategy resolves downward bias due to using short-term income.

2) Estimate intergenerational capital transmission

where E=education, H=health, L=land, S=spouse education, X=other covariates, ij is child, j is parent. Estimate using 3SLS.

ijL

ijL

jLLj

LHj

LEj

Lij eXLHEyL

ijS

ijS

jSLj

SHj

SEj

Sij eXLHEyS

5/17

ijH

ijH

jHLj

HHj

HEj

Hij eXLHEyH

ijE

ijE

jELj

EHj

EEj

Eij eXLHEyE

Estimation Strategy

ijjoij eybby 1

3) Estimate IGE via OLS-IV using different specifications to isolate pathways of transmission: i)Here π captures productivity transmission independent of child capital accumulation. λi estimates are returns to child capital. ii)where μ captures both direct productivity and indirect liquidity effects of parental income. λ are returns to parent capital.iii)allows testing of the exclusionary restriction (λp2 = 0) that parental capital has no direct effect beyond that on child capital accumulation and productivity transmission.

ijy

ijy

ijLiij

Hiij

Eijij eXLHEyy 1111

ijy

ijy

jL

jH

jE

jij eXLHEyy 2111

ijy

ijy

ijLiij

Hiij

Eij

Lj

Hj

Ejij eXLHELHEyy 3222222

5/17

Estimation Strategy

• Bukidnon: a rural, landlocked province of southern Philippines

• Gathered over two decades:o 1984: 448 families relying primarily on

agricultural income, largely sugar, corn or rice

o 2003/2004: revisited original families, tracked children to new homes in local, peri-urban & urban locations

• “Split” vs “migrant” children o As children, not significantly different

except by gender and birth order.o By adulthood migrants better

educated, wealthier

Data

7/17

Data

8/17

Mean Values Daughters

Mean Values Sons

Mean Values Migrants

Mean Values Non-Migrants

Child Age (years) ‘84 9.6 10.4 9.5 10.3

Father Age (years) ‘84 40 40 40 40

Mother’s Education (years) ‘84 5.9 5.6 5.9 5.6

Father’s Height (years) ’84 161 161 161 161

Parent Landholdings (hectares) ‘84 2.3 2.6 2.6 2.3

Parent Weekly Income (Philippine Peso) ‘84 270 301 288 279

Child Age (years) ‘03 29 30 29 29

Child Household Size (persons) ‘03 ` 7.2 4.6 5.3

Child Education (years) ‘03 9.7 8.6 9.8 8.8

Spouse Education (years) ‘03 9.3 10.1 10.2 9.1

Child Height (cm) ‘03 150 163 155 156

Child Landholdings (hectares) ‘03 0.1 0.3 0.2 0.2

Child Weekly Income (Philippine Peso) ‘03 1830 1805 2439 1326

Naïve IGE Estimates

9/17

Estimator:

(3) OLS

(4) IV

Dependent Variable: Log Child Inc Log Child Inc Independent Variable: Avg Parent Inc Parent Inc ‘84 Instrument: NA Parent Expen ‘84 All Children: 0.196*** 0.496*** (0.0491) (0.119) Daughters: 0.167*** 0.534*** (0.0589) (0.162) Sons: 0.233*** 0.429*** (0.0741) (0.147) Splits: 0.232*** 0.474*** (0.0492) (0.103) Migrants: 0.159** 0.567*** (0.0653) (0.195)

Robust standard errors in parentheses Father’s age and child’s age are controlled for quadratically in all regressions

*** p<0.01, ** p<0.05, * p<0.1

Once control for permanent income and life cycle effects, IGE much higher than w/o controls and higher than OECD countries. No stat. sig. difference b/n daughters/sons, migrants/non-migrants

Capital Transmission Pathways

9/17

Key results:- Liquidity effects limited. Parental income exerts a significant positive effect only on education (esp. sons’).

- Direct intergenerational capital transmission significant. Esp. true for mothers’ human capital on both sons and daughters: children’s education and height, and their spouse’s education.

- Landholdings also pass from parents to children, 4x more strongly for sons than for daughters. But sharp movement out of agriculture 1984-2004

- Mother’s education negatively related to daughters’ height, seemingly through effect on maternal labor supply and thus on child feeding practices.

9/17

Daughter Education

Daughter Height

Daughter Landholdings

Daughter Spouse Education

Log Parent Income ‘84 0.950 1.925 -0.0184 1.554* (0.766) (3.084) (0.128) (0.872) Parent Land ‘84/’03^ 0.140* -0.209 0.0434*** 0.000371 (0.0814) (0.331) (0.0125) (0.0842) Mother’s Education 0.343*** -0.762** -0.0137 0.189* (0.0798) (0.317) (0.0166) (0.114) Father’s Education 0.170** 0.397 0.0157 0.252** (0.0830) (0.330) (0.0171) (0.118) Mother’s Height -0.0874*** 0.422*** -0.00874 -0.00359 (0.0333) (0.132) (0.00682) (0.0470) Father’s Height 0.0217 -0.0181 -0.00896 0.00689 (0.0305) (0.121) (0.00629) (0.0434) Son

Education Son

Height Son

Landholdings Son

Spouse Education Parent Income ‘84 3.185*** -1.013 -0.763** 0.653 (1.145) (2.042) (0.362) (0.917) Parent Land ‘84/‘03^ -0.0447 0.279 0.163*** -0.0283 (0.152) (0.283) (0.0281) (0.0671) Mother’s Education 0.312** -0.0500 0.0224 0.365*** (0.145) (0.240) (0.0507) (0.135) Father’s Education 0.137 0.272 0.00142 0.0266 (0.124) (0.208) (0.0432) (0.114) Mother’s Height 0.0176 0.403*** -0.0178 0.0266 (0.0584) (0.0971) (0.0206) (0.0548) Father’s Height -0.00423 0.293*** -0.0378** 0.00505 (0.0444) (0.0735) (0.0157) (0.0419) Controls include household size, gender-specific birth order dummies, location & ethnic group dummies

^ Parent land is given by ’84 holdings in columns 1 and 2, and ’03 holdings in columns 3 and 4. *** p<0.01, ** p<0.05, * p<0.1

Capital Transmission Pathways

10/17

Income Transmission Pathways

- Naïve IGE estimates statistically insignificantly different between daughters and sons (0.43-0.53).

- But once we control for capital transmission, very different pathways appear by child gender.

- In both cases, landholdings and spouse education strongly affect children’s adult income – and is each strongly associated with parent land and maternal education, respectively. But the estimated marginal effects of landholdings (spouse education) are far higher for daughters (sons).

- For daughters, IGE runs primarily through intergenerational productivity correlation, while for sons no such effect exists.

10/17

Daughters’ Income Transmission Pathways (1) (5) Parent Income ‘84 0.534*** 0.721** (0.162) (0.320) Parent Land ‘84 -0.0348 (0.0229) Mother’s Education 0.0670* (0.0370) Father’s Education -0.0349 (0.0298) Mother’s Height 0.0312** (0.0122) Father’s Height -0.00462 (0.0121) Own Education 0.0483 (0.0367) Spouse Education 0.0387* (0.0199) Own Height -0.00524 (0.00799) Landholdings 0.355*** (0.125) Additional Controls: No Yes Observations 240 216 R-squared 0.115 0.428

Additional controls include child/father age (quadratic), parent household size, gender-specific birth order dummies, location (barrio) & ethnic groups dummies

*** p<0.01, ** p<0.05, * p<0.1

Very strong intergen-erational productivity transmission effect.

Daughters’ landholdings and spouse education also play a big role.

Some residual effect of maternal human capital.

10/17

Sons’ Income Transmission Pathways

By contrast, no intergen-erational productivity transmission effect.

Sons’ landholdings and spouse education also play a big role.

Some residual (negative?) effect of parental human capital.

(1) (5) Parent Income ‘84 0.429*** -0.272 (0.147) (0.364) Parent Land ‘84 0.0323 (0.0251) Mother’s Education 0.0401 (0.0383) Father’s Education 0.0218 (0.0325) Mother’s Height -0.0662*** (0.0195) Father’s Height -0.0289** (0.0131) Own Education 0.0276 (0.0221) Spouse Education 0.130*** (0.0235) Own Height 0.0219 (0.0141) Landholdings 0.130** (0.0550) Additional Controls: No Yes Observations 182 154 R-squared 0.050 0.593

Additional controls include child/father age (quadratic), parent household size, gender-specific birth order dummies, location (barrio) & ethnic groups dummies

*** p<0.01, ** p<0.05, * p<0.1

1. IGE is high (~0.5) in rural Philippines2. But there are sharp gender differences in the pathways

behind these IGE estimates.3. For sons, IGE operates through land and spouse education

capital transmission, with some residual (negative!?) association with parental human capital.

4. For daughters, IGE also operates through land and spouse education capital transmission, but with some residual association with maternal human capital and very strong intergenerational productivity transmission

5. While parent income does not affect most child capital levels, which are driven primarily by parent capital stocks, son & son-in-law education are normal goods

Conclusions

11/17

6. Marriage markets and land inheritance are therefore crucial institutions limiting equality of opportunity, especially for women.

7. Patterns also differ for migrants and non-migrants (not shown due to time), with migrants children’s incomes driven by education, while pathway is landholdings and productivity for non-migrants, potentially signaling the important role of social networks.

8. Mothers’ human capital is important and transmits relatively equally to sons and daughters. Fathers’ human capital much less important and rarely equal to both sons and daughters.

Conclusions

11/17

Thank you for your time,attention and comments