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Diversification of Human Capital Investments in Rural Ethiopia

Journal article
Authors Annika Lindskog
Published in European Journal of Development Research
Volume 30
Issue 4
Pages 676-692
ISSN 0957-8811
Publication year 2018
Published at Department of Economics
Pages 676-692
Language en
Links dx.doi.org/10.1057/s41287-017-0099-...
Keywords demand for schooling, human capital, uncertainty, risky investment, diversification, traditional, birth-order, child labor, education, returns, demand, risk, market, uncertainty, insurance, transfers
Subject categories Economics, Public Administration Studies

Abstract

We investigate household-level diversification of human capital investments in a rural developing country setting. Returns to schooling and to the alternative, which includes acquisition of traditional agrarian knowledge, are uncertain. The theoretical model combines a portfolio-choice model with a human capital investment model. Diversification implies a negative relationship between education of the younger and the older sibling. Diversification is more important in more risk-averse households, and we use the interaction between sibling dependency in education and risk preferences to empirically test for diversification. Moreover, diversification is less important in credit-constrained households. The empirical analysis employs data on school entry of boys and girls in the rural Amhara region of Ethiopia. The results suggest diversification across brothers in households that are less credit-constrained.

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