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Too Hard, Too Easy, or Just Right: Dynamic Complementarity and Substitutability in The Production of Skill

Author

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  • Juan F. Castro

    (Universidad del Pacífico)

  • Lucciano Villacorta

    (Central Bank of Chile)

Abstract

Evidence shows that skill attained early in the life of children can either increase (dynamic complementarity) or reduce (dynamic substitutability) the effect of inputs occurring later. We propose a novel production function of cognitive skill that allows the same input to exhibit both phenomena using the notion that learning is maximized when the skill already attained by the child matches the complexity of the input. We estimate this function using panel data on test scores and schooling for a large sample of Peruvian children, and a non-linear version of the Arellano-Bond GMM estimator. We find schooling exhibits dynamic complementarity when its complexity exceeds the child’s skill and dynamic substitutability otherwise.

Suggested Citation

  • Juan F. Castro & Lucciano Villacorta, 2020. "Too Hard, Too Easy, or Just Right: Dynamic Complementarity and Substitutability in The Production of Skill," Working Papers 175, Peruvian Economic Association.
    • Handle: RePEc:apc:wpaper:175
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    References listed on IDEAS

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    Cited by:

    1. Andrew D. Foster & Esther Gehrke, 2017. "Start What You Finish! Ex Ante Risk and Schooling Investments in the Presence of Dynamic Complementarities," NBER Working Papers 24041, National Bureau of Economic Research, Inc.

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    More about this item

    Keywords

    Production function of skill; dynamic complementarity; dynamic substitutability.;
    All these keywords.

    JEL classification:

    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models

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