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Price shocks and human capital: Timing matters

Author

Listed:
  • Habtamu Ali Beshir

    (Department of Economics, University of Bath, Claverton Down, Bath, BA2 7AY, UK)

  • Jean-François Maystadt

    (UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES))

Abstract

The effect of economic shocks on human capital is theoretically ambiguous due to opposing income and substitution effects. Using child level information on schooling, child labour, and cognitive development, we investigate the effect of cocoa price fluctuations on human capital production in Ghana. We demonstrate that the timing of the price shock matters. For school-aged children, the substitution effect dominates: a price boom decreases schooling and increases child labour. An increase of one standard deviation in the current-year real producer price of cocoa significantly decreases current school attendance by 8 percentage points and the likelihood of being in the correct grade in the following year by 6.3 percentage points. For pre-school-aged children, however, the income effect dominates: early life and in utero booms in the real producer price of cocoa significantly increase Raven/IQ scores and grade attainment.

Suggested Citation

  • Habtamu Ali Beshir & Jean-François Maystadt, 2022. "Price shocks and human capital: Timing matters," LIDAM Discussion Papers IRES 2022020, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
    • Handle: RePEc:ctl:louvir:2022020
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    File URL: https://sites.uclouvain.be/econ/DP/IRES/2022020.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    Ghana; Cocoa Price Shocks; Child Labour; Schooling; Cognitive Development; Human Capital;
    All these keywords.

    JEL classification:

    • I25 - Health, Education, and Welfare - - Education - - - Education and Economic Development
    • J1 - Labor and Demographic Economics - - Demographic Economics
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development

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