The accumulation of human capital in developing countries

Lead Research Organisation: Institute for Fiscal Studies
Department Name: IFS Research Team


I will study the process of human capital accumulation among poor families in developing countries. Recent research in many disciplines has established that human capital, the set of physical capabilities (health, nutritional status) and cognitive and non-cognitive skills that make individuals productive, is key in the process of development, both at the level of the individuals and of societies. From a micro perspective, it is well established that human capital is multidimensional and its accumulation is a complex dynamic process that starts very early in the life of human. Indeed, there is mounting evidence that what happens from conception to 5 has long run consequences, in part because the level of development in the first few years affects the ability individuals have to develop further later in life. This type of dynamic phenomena is what economists call dynamic complementarities of investment in human capital.
It is also increasingly clear that the first few years are particularly malleable. This implies that, if on the one hand children in difficult environments might be particularly vulnerable, on the other, the early years are particularly salient for policy interventions. Well- targeted and well-designed interventions in the early years can have long lasting effects sustained long after the intervention is concluded.
I intend to answer some of the outstanding issues in the study of human capital accumulation during the early years of poor children in developing countries. My research is articulated around three related themes:
(i) the study of what economist call the production function of human capital; While much is known about the factors that affect the growth of human capital, many outstanding issues (about the size of dynamic complementarities, about the interaction of different components of human capital and about effect of certain inputs) remain.
(ii) The study of the investment decisions poor parents in developing countries make about their children's human capital. Parents invest time and money in their children's development. Modeling these choices and identifying what are the factors that affect them is key for the design of policies aimed at fostering human capital accumulation. Parental choices will react to policies and incentives in ways that might hinder or enhance their effects.
(iii) The identification of distortions in the perceptions that poor parents might have of the human capital production function and of the returns to specific investments. Parent's distorted beliefs might induce wrong choices. By looking at parents choices in contexts where specific interventions (provided to a random subset of the population) change behaviour by changing information, one can identify both the 'distorted' perception parents might have and the actual production function of human capital and contrast them. The identification of such distorted perceptions can also be pursued by measuring directly individual beliefs. Regardless of the method used, the identification of individual beliefs and their possible distortion is key for the design of policy.
The proposed research grows from several projects that I have been pursuing in the last few years and that have involved the design and evaluation (or the evaluation) of early childhood development interventions in developing countries. These activities have put me in the position of having the possibility of designing survey questionnaires and tailoring data to the needs of specific research questions. Many of the data sets I will use from several developing countries (Colombia, Malawi, India) have been collected within Randomized Control Trials to evaluate specific interventions. Therefore, the data contain variation that is by construction exogenous and that can be used to estimate the models I study. Most of the data sets I will use have a longitudinal dimension and contain measures of many aspects of children development.

Planned Impact

In addition to academic beneficiaries, the research proposed is of crucial importance for policy makers. One of the main features of the research I am proposing on the accumulation of human capital among poor children in developing countries is that it focuses on the mechanisms behind the impacts that certain interventions have. This is key if one wants to extrapolate the lessons learnt from one experiment designed around a specific policy and apply them to different contexts or even to adjust the policy.
Over the last few years the research team of which I am part has studied several early childhood interventions. In most of these studies, the emphasis has been not only on the impacts of the intervention but also on its scalability. That is, the focus has been on interventions that could be developed at scale, both because of their costs and because of their use of existing institutions and infrastructure. For this reason, the results of the additional analysis that we propose should be of particular resonance for policy makers.
During the last few years, we have disseminated the results of our research widely among policy makers. Even more importantly we have established close links to policy makers in several countries and with officers at large international finance institutions. For instance, in the case of the Early Childhood Intervention in Colombia which I mention in the proposal, working closely with an existing widespread welfare program and its officials, not only gave us the possibility of developing a scalable intervention, but also facilitated the dissemination of our results. Analogously, as the intervention was co-financed by the Inter American Development Bank, we kept close connections with its officials who helped us to disseminate our results throughout the continent. This led to the interest of the Peruvian government, which is now developing a similar intervention and with which we are collaborating.
I plan to adopt a similar strategy in the research I propose and use the results I will obtain to promote effective and scalable policies.


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Description This award facilitated research on the processes that drive human capital accumulation in developing countries. This research consisted of three strands: (i) identifying the determinants of cognitive and socio-emotional skills and health in young children, (ii) assessing how parents in developing countries make decisions over the financial and time investments they make in their children and (iii) examining the beliefs parents hold about the process of child development, whether these beliefs reflect reality and how they affect parenting decisions. Taking each strand separately, key findings from the award are summarised below.
First, interventions that target children's environment during the first years of life can have substantial impacts on their development, at least in the short term. Research associated with this award has found positive impacts from psychosocial stimulation home-visiting interventions in India and Colombia and from providing pedagogical based teacher training and reading programmes to Colombian nursery schools. At the same time, research from this award has found no evidence that a government upgrade of Colombian nursery schools including more materials and staff had any impact on child development. Analogously short-run effects on child development from the Colombian home-visiting intervention were not sustained after two years.
To design successful Early Childhood Development (ECD) policy that positively affects children's development over the short- and longer-run it is imperative to understand the processes that underlie skill formation in early childhood. To this end, research funded through this award modelled the development of cognitive and socio-emotional skills in young Colombian children. This research found evidence that young children's skills are persistent over time and that the more developed children's current skills are the more productive future parental investments will be. The research found that improvement in children's cognitive and socio-emotional skills because of a home visiting intervention could be fully explained by how the intervention was observed to increase parental time and material investments.
Second, how parents in developing countries decide how much time and resource to invest in their child's development is crucial. Research funded through this award has found that local prices and wages as well as household resources are crucial in determining parental investments. Modelling investment turns out to be important to estimate its impacts.
Third, research associated with this award shed light on the importance of maternal subjective beliefs in explaining the heterogeneity in maternal choices of investments in the development of their children. We elicited maternal beliefs about the determinants of child development from poor mothers in Colombia. We showed how to convert the answers to a specific set of questions into estimates of expected rates of returns on specific investment and then relate these estimates to actual parental investment behaviour. With this approach, under some assumptions, we converted the answers mothers give to beliefs questions into parameter values for the perceived human capital production function. This research found evidence that parents think that the productivity of investment is higher for low initial human capital than for high initial levels.
Exploitation Route This research programme has been having a direct impact in the determination of effective and scalable policies to foster child development in developing countries. The results of the stimulation intervention designed and evaluated in Colombia have been used by the Peruvian government to start a large intervention that is also being evaluated. Likewise, the intervention we are currently studying in India was inspired by that work and is now having some influence on reform of the Indian Child Development Service. Finally, the government of Colombia is now discussing some of our work to design reformed modalities of interventions.
More generally, the discussion we had with international financial institutions like the World Bank and the IADB have been informed and inspired by the research funded by this award.
Sectors Communities and Social Services/Policy,Creative Economy,Education,Healthcare,Government, Democracy and Justice

Description The findings of this study were presented to government officials and academic audiences through a series of engagement events. These events took place in the UK as well as overseas. In 2014 we organised a meeting with council officials in Peterborough to share our experience in conducting an early childhood intervention in lower and middle income countries. The purpose of this meeting was to explore the possibility of a similar intervention in Peterborough. We presented a lecture on the subject of 'Modelling and Improving Development in the Early Years: Evidence from a Stimulation Intervention in Colombia' at Polytechnique Paris. The audience learned about the results of the survey and methodology employed. A short survey following these talks showed that audience reported change in views and opinions they may have previously held related to early childhood development. In 2016 we cooperated with Inter-American Development Bank to organise a two day conference at the British Academy, London, entitled 'The early years: child well-being and the role of public policy'. The conference brought together international experts from various fields such as child development, psychiatry, public policy and economics. Lesson learned from different areas such as parenting, schooling and health and nutrition were shared. Furthermore, in cooperation with European Bank for Reconstruction and Development (EBRD) a seminar was held on the subject of 'Early Childhood Development: Fostering Economic Inclusion Right from the Start. Participants included experts from Institute for Fiscal Studies (IFS), Inter-American Development Bank (IADB) and Central European University in Budapest and EBRD. The event was free of charge and open to public. The audience consisted of UK government officials, NGO staff, academics and policy makers. Finally, a number of working papers and articles have been published in publications such as the Economic Journal, Journal of Development Economics, Journal of Economic Resources, Journal of Behavioural Development and Journal of Development Studies, to name but a few. Topics range from the determinants of human capital formation during the early years of life, living standards in Southern Indian villages, maternal mental health, microfinance, sanitation, family networks and livestock asset transfers.
First Year Of Impact 2014
Sector Education,Other
Impact Types Societal,Economic,Policy & public services

Description Meeting with council officials in Peterborough 
Form Of Engagement Activity Participation in an activity, workshop or similar
Part Of Official Scheme? No
Geographic Reach Local
Primary Audience Policymakers/politicians
Results and Impact Researchers met with council officials in Peterborough to discuss the possibility of an early childhood intervention, based on our experience of analysing interventions elsewhere.

The officials were able to use our advice when considering the nature of the intervention.
Year(s) Of Engagement Activity 2014
Description Modeling and Improving Development in the Early Years: Evidence from a Stimulation Intervention in Colombia 
Form Of Engagement Activity A talk or presentation
Part Of Official Scheme? No
Geographic Reach International
Primary Audience Other academic audiences (collaborators, peers etc.)
Results and Impact This was a talk about an early childhood intervention in Colombia. There was discussion about the methodology and findings.

Feedback from used to improve the study and contacts were made with academics carrying out studies in the field.
Year(s) Of Engagement Activity 2014
Description Modeling and Improving Development in the Early Years: Evidence from a Stimulation Intervention in Colombia 
Form Of Engagement Activity A talk or presentation
Part Of Official Scheme? No
Geographic Reach International
Primary Audience Other academic audiences (collaborators, peers etc.)
Results and Impact This was a lecture at Polytechnique Paris. There was discussion of the methodology and results of the survey.
Year(s) Of Engagement Activity 2014