Moving Up The Economic Ladder

MOVING UP THE ECONOMIC LADDER Cross country evidence on educational mobility in developing countries Charul Verma Tanvi Sharma Aastha Verma Vaishali Jain Shakthisree S

Acknowledgement

We would like to thank Dr.Neelam Singh, faculty advisor for her guidance. ABSTRACT The concept of economic mobility is a fascinating one- the notion that individuals can improve their condition in life through hard work and fulfil their aspirations irrespective of their family background. There have been numerous studies on mobility of developed countries. Recently it has been observed that mobility has been increasing for developing economies, but unevenly. Here we attempt to understand the factors that could possibly explain the differences in educational mobility, (which is a good proxy for income mobility) in 34 developing countries and the role of institutions and policy in affecting the same. It was found that institutional factors as well as cultural factors play an important role in explaining the same. JEL classification: E24,J62, I24, I28 Keywords: Intergenerational Upward Mobility, family background effects.

INTRODUCTION What is economic mobility? Economic mobility across generations, also known as intergenerational mobility (IGM) in the economic literature, is a key element of human progress. It tells us to what extent children enjoy a higher living standard than parents had for themselves. A society can be deemed more or less mobile depending on whether the link between parents’ and children’s social status as adults is looser or tighter. In a relatively immobile society an individual’s wage, education or occupation tends to be strongly related to those of his/her parents. Education mobility - A key element of economic mobility Education is a key dimension of human progress, education mobility is important in its own right and is an essential element of economic mobility, when economic mobility is understood in terms of well-being rather than income alone. Moreover, because education tends to be a strong predictor of lifetime earnings, mobility in education is a key factor influencing income mobility. Economic theories predict that IGM in education and IGM in income are positively correlated.

Intergenerational educational mobility depends on a host of factors that determine individual economic success, some related to the heritability of traits (such as innate abilities), some related to the social and cultural environment in which individuals develop(such as social norms, work ethics, attitude towards risk and social networks). And lastly, it depends on policy interventions and institutional factors of a country. Sustainable and inclusive growth, public policy must help give scope to such aspirations. But evidence suggests that, in too many parts of the world, mobility poses a challenge. This concern is especially acute for developing countries: in most of them, it is harder than in wealthier countries to move from the bottom to the top of the economic ladder.

Trends in mobility in developing countries Developing countries have increasingly fallen behind developed countries in mobility. Mobility has improved in some developing regions, but declined or stagnated in few regions. Although IGM on average has improved across developing economies since the 1950s, the improvements are highly uneven and not evident everywhere. A breakdown of trends in the IGM between the 1950s cohort and the 1980s cohort shows that positive changes are largely concentrated in East Asia and the Pacific,Latin America and the Caribbean, and the Middle East and North Africa. In contrast, absolute IGM has declined in Eastern Europe and Central Asia and stagnated in Africa. RELATED LITERATURE There have been many studies highlighting the factors affecting intergenerational education mobility. We have broadly classified these factors into 4 categories. Role of government/ influence of government policies​: The factors like the policies and schemes implemented by the government should have a positive effect on education mobility, that is the mobility will be higher if the policy is good and is implemented effectively(Sutherland and Price, 2007). Similarly, the expenditure done by government on schools and primary education has a positive effect on mobility. Early childhood care and education for the development of cognitive skills at later stages in life has also been recognised as an important factor.(Causa and Chapuis, 2009) Inequality in the region: It is widely believed that countries with greater levels of income inequality also have lower levels of intergenerational mobility.(Corak 2013) This relationship, known as the Great Gatsby Curve (GGC). We have taken indicators like GINI index and poverty headcount ratio which show this relationship. Cultural variables: There are differences in family culture of how children are motivated to learn, what beliefs they have, which goals they thrive to achieve and in the means and skills of learning. The effect of cultural variables on educational mobility has been established using metrics of hard work, competitiveness and free choice (Kathrin Thiemann, 2016). Since mobility and thus equality of opportunity also depend on cultural aspects, the political focus should not only be on the design of adequate incentives in school and the labor market, but also on the formation of values and beliefs in early childhood. Children from disadvantaged backgrounds can be motivated by the belief that they have free choice and control over their lives and by a competitive environment. Child related Health factors:

Circumstances begin affecting opportunities early in a child’s life. Children’s endowments at birth are influenced by a number of factors, including, nutrition, height and weight, basic health care and medical services, sanitation, safe drinking water and mother’s health. (Fair Progress? By the World Bank Group, 2018).

EMPIRICAL ANALYSIS This study uses the Ordinary Least Squares approach to understand the factors that determine upward educational mobility . The model will estimate the equation given below: Y= β 1​+ β 2​X​2​+ β 3​X​3​+ β 4​X​4​+ β 5​X​5​+ β 6​X​6 + β 7​X​7 The dependent variable that we have taken here is ​absolute upward mobility​. According to the report created by world bank ‘Fair progress?’,“absolute upward mobility, in an economy is measured by the share of respondents in a nationally representative survey who have higher education levels than the maximum level of education among the parents of the respondent (excluding individuals whose parents have tertiary education)”. Like absolute upward mobility, relative mobility is also another way to find out mobility, which measures, as defined by the world bank report ‘Fair Progress?’ , the extent to which the educational attainment of individuals is independent of the education of their parents, using the coefficient from regressions of children’s years of education on the education of their parents. Higher values of this regression coefficient indicate greater persistence, and hence lower relative mobility. We have measured the absolute upward mobility for 1980 birth cohorts which means that we have taken the data for the people born in 1980, for 33 countries from 1996 to 2016.

Variable

Description

X1

Government expenditure on education(as % of GDP)

X2

Poverty headcount ratio at $3.20 a day (2011 PPP) (% of population)

X3

Hard work ratio (value attached by low educated people on hardwork/value attached by highly educated people on hard work)

X4

Freechoice ratio (the liberty of children to choose their career paths on their own- low educated/highly educated)

X5

GDP per capita

X6

Account ownership at a financial institution or with a mobile-money-service

provider, poorest 40% (% of population ages 15+) X7

Adjusted net enrollment rate, primary (% of primary school age children)

INTERPRETATION AND RESULTS Running OLS regression on the above mentioned independent factors yielded the following results: -Government expenditure, poverty headcount ratio, adjusted net enrollment rate and GDP per capita are significant at the 5% level. -Hard work ratio is significant at the 10% level.

ANALYSIS AND CONCLUSION ​Government expenditure on education​: The results show that government expenditure is has a positive and highly significant effect on upward educational mobility. Thus this implies that developing countries through effective education policies and affect the educational mobility. Poverty headcount ratio ​shows the proportion of people who live below poverty line. The coefficient for it is positive and highly significant which depicts that as more people are below poverty line,any improvement in education will result in upward mobility, whereas if the standard of living is very high in the first place then, any improvement in education will have less potential for upward mobility. This is often termed as ‘​ceiling effect’​ which simply means there exists an upward ceiling to educational mobility.’

Hard work ratio ​is ratio of how much value low income group of people attach to hard work to how much value high income group of people attach to hard work. In our model, the coefficient of hardwork ratio is negative and significant at 10% which depicts that richer people value hard work more. GDP per capita​ is found to be highly significant and positive which depicts that the countries with higher GDP have higher chances of upward mobility. Adjusted net enrollment rate ​is also positive and significant which shows yet again that government policies and schemes related to education have a positive effect on the upward mobility. Thus it can be seen that it is necessary to understand the multidimensionality of inequality and effectively use institutional interventions to help mend the social elevator and help people escape the vicious confluence of poverty, lack of opportunities and low skill level. These interventions include providing quality early childhood education and care, investing in health, improving access to higher education and credit. These policies can help in bridging the social gap and provide everyone the chance to fully exhibit their potential and thus foster a fairer and inclusive and dynamic society. DATA SOURCES Independent variables Government expenditure on education, total (% of GDP), Poverty headcount ratio at $3.20 a day (2011 PPP) (% of population), GDP Per capita, ​Account ownership at a financial institution or with a mobile-money-service provider, poorest 40% (% of population ages 15+), Adjusted net enrollment rate, primary (% of primary school age children)​ retrieved from http://databank.worldbank.org/data/source/world-development-indicators# The World Bank, World Development Indicators​. Free choice ratio, Hardwork ratio retrieved from ile:///C:/Users/asus/Downloads/cultureasdeterminant.pdf Culture as a determinant of intergenerational educational mobility- Evidence from PISA Dependent variables Global Database Intergenerational Mobility​, Development Research Group, World Bank. REFERENCES 1. Fair Progress?: Economic Mobility Across Generations Around the World- World Bank Group 2018 https://openknowledge.worldbank.org/handle/10986/28328 2. Sutherland and Price (2007). A Family Affair: Intergenerational Social Mobility across OECD Countries, ​Economic Policy Reforms: Going for Growth.

3. Causa and Chapuis (2009). Equity in Student Achievement Across OECD Countries: An investigation of the role of policies,​ OECD Journal: Economic Studies. 4. Corak, Miles (2013). Income Inequality, Equality of Opportunity, and Intergenerational Mobility, ​Journal of Economic Perspectives,​ ​27 (3):79-102. 5. Thiemann, Kathrin (2016). Culture as a Determinant of Intergenerational Education Mobility - Evidence from PISA.