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  5. Investing in the Next Generation: The Long-Run Impacts of a Liquidity Shock

Investing in the Next Generation: The Long-Run Impacts of a Liquidity Shock

  • Patrick Agte
  • Arielle Bernhardt
  • Erica Field
  • Rohini Pande
  • Natalia Rigol
American Economic Review (Forthcoming)

Abstract

Poor entrepreneurs must frequently choose between business investment and children's education. To examine this trade-off, we exploit experimental variation in short-run microenterprise growth among a sample of Indian households and track children's education and business outcomes over eleven years. Treated households, who experience higher initial microenterprise growth, invest more in education and are one-third more likely to send children to college. However, only literate households experience child schooling gains and their enterprises stagnate in the long-run. In contrast, illiterate treatment households experience long-run business gains but declines in children's education. Our findings suggest that microenterprise growth has the potential to reduce relative intergenerational educational mobility.

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