Nov 8, 2005, Norbert Schady
|Over the past two decades a large number of countries have experienced economic crises that led to sharp reductions in incomes and living standards. How has this affected schooling and health outcomes?|
Over the past two decades a large number of countries (Argentina, Indonesia, Mexico, Peru, and Russia) have experienced economic crises that led to sharp reductions in incomes and living standards. A broad look at the impact of macroeconomic crises on schooling and health outcomes, however, is inconclusive. For example:
The impact of crises on schooling varies:
The impact of crises on infant mortality also varies:
Macroeconomic crises and human capital in Peru
Two recent papers carefully analyze the impact of a particularly deep economic crisis in the late 1980s on school enrollment and child health . Between 1987 and 1990 the Peruvian economy collapsed: GDP per capita fell by 30 percent, inflation skyrocketed from 86 percent to 7,500 percent, and real wages in the capital city of
The magnitude of the economic collapse makes
What effect did the macroeconomic crisis in
During the crisis, public spending on schooling fell by almost 50 percent. Despite this drop in spending, analysis of the LSMS surveys shows that children were more likely to be enrolled, and less likely to be working during the crisis than in other years. Children exposed to the crisis had also completed more years of schooling for their age than comparable children who were not of school age during the crisis years. These effects of the crisis—higher probability of enrollment, higher grade attainment, lower probability of being employed—affected poor and non-poor households in similar ways.
What accounts for the “positive” effect of the Peruvian crisis on schooling outcomes? To answer this question, it is useful to think about the factors that affect schooling decisions. During an economy-wide shock, employment prospects deteriorate, and wages fall. As a result, the opportunity cost of going to school decreases. On the other hand, households that are credit constrained may not be able to adequately smooth consumption. As a result, they may be forced to take children out of school and put them in the labor market. What this discussion makes clear is that the expected effect of a crisis on schooling is not clear.
In Peru, a middle-income country with high levels of school enrollment, the negative effect of the crisis on the quantity of schooling through reductions in public expenditures, contractions in household income, or a drying-up of credit seem to have been offset by the reduction in the opportunity cost of going to school. Still, when interpreting these findings there is an important caveat: Time series data on tests scores are not available in
What effect did the macroeconomic crisis in
Analysis of time series of infant mortality constructed on the basis of retrospective information from the DHS shows that the infant mortality rate increased by 2.5 percentage points during the crisis. This implies that approximately 17,000 more children died than would have in the absence of the crisis.
To understand the effect of the crisis on infant mortality, it is once again useful to think about the channels through which the crisis could have worked. First, the crisis could have caused public health services to deteriorate. Second, it could have led to reductions in household expenditures on inputs to child health, including nutritious foods or medical care for mothers and infants. Third, the crisis could have resulted in changes in the composition of women giving birth—specifically, in a higher fraction of high-risk women giving birth. The analysis for
On the other hand, during the crisis per capita public health spending fell by more than 50 percent, the fraction of women giving birth at home increased by about 3 percentage points, and the number of antenatal visits fell significantly. It appears that these changes in access to and use of health services help account for the large increase in infant mortality.
Economic crises like those faced by Latin America in the 1980s,
Some of these lost investments may be irreparable—children pulled out of school may not return, other children may die or be badly malnourished. Moreover, if any negative effects of the crisis are concentrated among the poor, macroeconomic crises may contribute to the transmission of poverty across generations.
Although macroeconomic crises have the potential for very serious negative consequences for schooling and child health, a careful review of the literature suggests that broad-brush statements about their effects are unlikely to be informative. Clearly, the nature of the crisis and the government response matters a great deal. In
Social expenditures in
In addition, there is need for further careful empirical work on the impact of specific crises on a particular set of child health and schooling outcomes. This could help develop a typology that establishes what crises are likely to have what effects on human capital, and under what circumstances. Such work could serve as the the basis for the development of appropriate responses by governments and the international development community.
The findings, interpretations, and conclusions expressed in this brief are entirely those of the authors. They do not necessarily represent the view of the World Bank, its Executive Directors, or the countries they represent.
NORBERT SCHADY is Senior Economist in the Development Research Group. His research interests include education, labor markets, political economy, and the impact of macroeconomic shocks on human capital outcomes. * firstname.lastname@example.org.
 For Latin America see David De Ferranti, Guillermo E. Perry, Indermit S. Gill, and Luis Servén, Securing Our Future in a Global Economy,
 For Indonesiea see Duncan Thomas, Kathleen Beegle, Elizabeth Frankenberg, Bondan Sikoki, John Strauss, and Graciela Teruel, “Education in a Crisis,” Journal of Development Economics 74(1): 53-85, 2004.
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