This paper studies the effect of economic shocks on household human capital investment patterns using a sample of 6 to 14-year-old children going through the Peruvian education system. While other studies have analysed the impact of shocks on the accumulation of human capital, based chiefly on an analysis of school attendance, this study employs a more comprehensive analysis of the various mechanisms through which spending on education can be affected by short-term economic shocks. Evidence was found that is consistent with the hypothesis that shocks have an impact on the quality rather than the quantity of education. Even when a negative shock did not reduce the time spent on education, it reduced the effective accumulation of human capital through cuts in spending on education, in both rural and urban areas. Results are significant both when a short-term shock is brought about by changes in household income or expenses and when it is brought about by changes in employment status.
Escobal, J., Saavedra, J., Suárez, P., Working Paper 13. Economic Shocks and Changes in School Attendance Levels and Education Expenditure in Peru, 2005, London, UK; Save the Children UK, 40 pp.