Family Structure, Wealth, Family Structure, Wealth, and Economic Growthand Economic Growth

Maria Sophia AguirreMaria Sophia AguirreDepartment of EconomicsDepartment of Economics

The Catholic University of AmericaThe Catholic University of AmericaWashington, DCWashington, DC

World Congress of Families IVWorld Congress of Families IVWarsaw, PolandWarsaw, PolandMay 10-13, 200May 10-13, 20077

Today it is more feasible than ever before to achieve Today it is more feasible than ever before to achieve the desired goal of economic and social development the desired goal of economic and social development in terms of technology and productive potential. in terms of technology and productive potential. Yet:Yet:

• 1.3 billion persons live in extreme poverty with a per capita 1.3 billion persons live in extreme poverty with a per capita income of less than $1 / per day.income of less than $1 / per day.

• 3 billion persons are at the poverty level and subsist on less 3 billion persons are at the poverty level and subsist on less than $2 / per day.than $2 / per day.

• 1.3 billion persons have no access to drinking water.1.3 billion persons have no access to drinking water.

• 3 billion persons have no basic sanitation facilities.3 billion persons have no basic sanitation facilities.

• 2 billion persons have no electricity.2 billion persons have no electricity.

Environmental Health, Welfare and Living Conditions Environmental Health, Welfare and Living Conditions in Low Income Countriesin Low Income Countries

IndicatorIndicator % access% access

House Connection: waterHouse Connection: water 48 / 9948 / 99

House Connection: sewerageHouse Connection: sewerage 46 / 9946 / 99

House Connection: electricity House Connection: electricity 62 / 10062 / 100

Water consumption (liter per person)Water consumption (liter per person) 30 / 60030 / 600

Wastewater treatedWastewater treated 29 / 9729 / 97

Solid waste disposal: landfill or incineratedSolid waste disposal: landfill or incinerated 31 / 7831 / 78

Solid waste disposal: other (dump,recycled,etc.)Solid waste disposal: other (dump,recycled,etc.) 66 / 2266 / 22

Paved RoadPaved Road 19 / 9419 / 94

LiteracyLiteracy 49 / 10049 / 100

Under-five mortality (per 1000)Under-five mortality (per 1000) 107 / 6107 / 6

Public Expenditures on Health (%GDP)Public Expenditures on Health (%GDP) 1.3 / 6.21.3 / 6.2

Families face serious health and poverty problems, especially in the developing world

• Lack of income and assets to attain basic needs:Human assetsNatural assetsPhysical assetsFinancial assetsSocial assetsAging security

• Vulnerability to adverse shocks are linked to an inability to cope with them

There is a positive correlation between human capital, infrastructure and economic growthhealthy institutions and economic developmenthealth and income per capita

These positive correlations reflect an essential causal link running from human capital tohealthy institutions (social capital) infrastructure and technology

Life expectancy is a significant predictor of economic growth

We know from economic analysis that in economic development

Neo-Classical TheoryNeo-Classical TheoryInvestment plays a key role in the economic process. Investment plays a key role in the economic process.

The adjustments in growth take place due to the behavior of The adjustments in growth take place due to the behavior of investment in physical capital.investment in physical capital.

Investment determines the growth adjustment processInvestment determines the growth adjustment process

Country characteristics determine the relative level of income. Country characteristics determine the relative level of income.

Shocks only play a minor role in determining economic growth. Shocks only play a minor role in determining economic growth.

These models have explained the experience of developed countries, These models have explained the experience of developed countries, they have failed to explain the worldwide experience. Human Capital they have failed to explain the worldwide experience. Human Capital has also been incorporatedhas also been incorporated

How Does the Family Facilitate How Does the Family Facilitate Investment?Investment?

Basic Basic ActivitiesActivities

Means UsedMeans UsedRole of the Role of the

FamilyFamilyPurposePurpose

ProductionProduction ResourcesResources Human CapitalHuman Capital Basic NeedsBasic Needs

ExchangeExchange MarketMarketHuman, Moral, Human, Moral, Social CapitalSocial Capital

ProfitProfit

ConsumptionConsumptionOptimization and Optimization and

DistributionDistributionAppropriate Appropriate distributiondistribution

WellbeingWellbeing

(welfare)(welfare)

Questions to be addressedQuestions to be addressed

Is the family relevant to the process of production within Is the family relevant to the process of production within the economy only because it affects human capital or it the economy only because it affects human capital or it affcets investment as well?affcets investment as well?

If so, How?If so, How?

With this goal we analyzed the relationship between With this goal we analyzed the relationship between family structure and wealth in three countries:family structure and wealth in three countries:

CanadaCanada GuatemalaGuatemala USAUSA

Impact in NumbersImpact in NumbersCanadaCanada GuatemalaGuatemala USAUSATT MM SMSM TT MM SMSM TT MM SMSM

AgeAge -5.3-5.3 2.32.3 -7.2-7.2 -.12-.12 .27.27 -15-15 4.34.3 2323 1515

EducationEducation 33 66 22 - 2.2- 2.2 3.53.5 -6-6 12.312.3 7.47.4 1.61.6

Breakdown Breakdown FamilyFamily

-14-14 -32-32 -10-10 9.49.4 -18-18 -42-42

ChildrenChildren -.05-.05 2.32.3 -15-15 55 -.23-.23 -36-36 22 -.10-.10 -6-6

RaceRace -.21-.21 1.41.4 -4-4 .007.007 .005.005 .26.26 13.713.7 -2.9-2.9 -42-42

OccupationOccupation 1717 1818 1212 NANA NANA NANA 18.718.7 7.77.7 2.72.7

Regular Regular IncomeIncome

4545 3434 2121 3232 4545 2222 113113 117117 113113

HousingHousing 4545 6363 2323 5050 5555 1010 198198 118118 6767

12

3

Wealth

Housing0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

Canadian Dollars

Marital Status

Wealth Distribution

Wealth in Canada

Wealth

Housing

Less HSHS

TerciaryCollege

1

20

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

Canadian Dollars

Level of Education

Marital Status

Net Wealth in Canada

Chinese Famine 1958-1961Chinese Famine 1958-1961 Unexpectedly occurred when grain per capita had Unexpectedly occurred when grain per capita had

increasedincreased

30 million casualties and 33 million postponed births30 million casualties and 33 million postponed births

Causes thus far put forward are able to explain its Causes thus far put forward are able to explain its magnitude but not how it first started:magnitude but not how it first started:

Bad weatherBad weather Reduction in sown acreageReduction in sown acreage Government’s high grain procurementsGovernment’s high grain procurements Forced collectivizationForced collectivization Bad managementBad management Collapse of incentive mechanismsCollapse of incentive mechanisms

Communal Dining HallsCommunal Dining Halls 1958 Mao and Party created 2.65 million.1958 Mao and Party created 2.65 million.

Private kitchens were destroyed.Private kitchens were destroyed.

Peasants’ private food stocks were collectivized.Peasants’ private food stocks were collectivized.

Cooking woks and pots were collected and melted Cooking woks and pots were collected and melted down to serve as iron or steal.down to serve as iron or steal.

Free food was provided and food products were Free food was provided and food products were channeled directly unto dining halls.channeled directly unto dining halls.

““Open your stomach, eat as much as you wish, and Open your stomach, eat as much as you wish, and work hard for socialism.”work hard for socialism.”

ConsequencesConsequences Overcomsumption Overcomsumption ( a six month supply was ( a six month supply was

depleted in three months)depleted in three months)

Inefficient use of resourcesInefficient use of resourcesLeftovers thrown awayLeftovers thrown awayWasted food in the process of transfers from Wasted food in the process of transfers from

storage to cooking due to neglect or poor storage to cooking due to neglect or poor managementmanagement

By the end of 1958 By the end of 1958 food shortage/starvationfood shortage/starvation

Mao refused to reverse this policy until the mid Mao refused to reverse this policy until the mid of 1961of 1961

At the time most At the time most farmers chose to return to farmers chose to return to home dininghome dining

By the end of 1961, famine was ended in six By the end of 1961, famine was ended in six monthsmonths

Number of Deaths by Percentage of Number of Deaths by Percentage of Population Use of Population Use of

Communal Dining HallsCommunal Dining Halls 8192

12891003

335999

1978

7411318379

0

1000

2000

3000

4000

5000

6000

7000

8000

9000

23 26.5 29.4 29.9 90.5 92.6 96.5 97.6 97.8 96.7

Percentage of Communal Dinning Halls Used

Nu

meb

r o

f D

eath

s

Source: Chang and Wen (1997), Table 5.

Low use High use

China late 1990s-2006China late 1990s-2006 Children consumption in cities higher than that of adults.Children consumption in cities higher than that of adults.

Parents provide to children their food wishes but no Parents provide to children their food wishes but no balance diet.balance diet.

Family meals have been replaced by milk, cookies, cold Family meals have been replaced by milk, cookies, cold drinks, or health supplements children do not need.drinks, or health supplements children do not need.

Children experiencing many health digesting problems.Children experiencing many health digesting problems.

Forecast show Chinese families can’t support pattern of Forecast show Chinese families can’t support pattern of consumption and therefore standard of living for parents consumption and therefore standard of living for parents are falling.are falling.

Negative human and social capital effects.Negative human and social capital effects.

ConclusionsConclusions Family structure is relevant for wealth. This happens to be Family structure is relevant for wealth. This happens to be

the case after other characteristics are controlled by.the case after other characteristics are controlled by.

The impact of children on family wealth is best within The impact of children on family wealth is best within marriage.marriage.

Evidence seems to hold across countries. In socialized Evidence seems to hold across countries. In socialized market economies the negative impacts seem to be market economies the negative impacts seem to be mitigated but not eliminated.mitigated but not eliminated.

Life-cycle theory of savings seems to be supported by Life-cycle theory of savings seems to be supported by empirical evidence.empirical evidence.

Healthy family structures support private property.Healthy family structures support private property.