Parents decision to invest in education of children is modelled through an adaptation of the models in Alderman and King (1998), and Brown and Park (2002). The model assumes that parents live for only two periods; they work in the first period and then retire in the second period. Household consumption in period one is parentsβ income less costs of educating children.
Parents have a lifetime income,π an indicator of family wealth and is based on parentsβ level of education, ππ΄π πΈπ·ππΆ. That is, parentsβ income, π = π(ππ΄π πΈπ·ππΆ) . Parents choose a certain amount to invest in the education of the child,πΈπ·ππΆ. The condition for educating children is based on parental preferences which are often influenced by their level of education and gender of the child, π. Parents in urban areas will provide their children with the level of education necessary to maximise their future wealth. Urban educated parents may therefore be less reliant on their children for future financial support. Rural parents, however, may not be able to provide the wealth-maximising level of education because of financial constraints. Rural parents may therefore choose to invest more in boys because of the associated future economic benefits, in the form of pensions for parents in old age. Daughters on the other hand may receive lower investment because of virilocality6
in traditional Ghanaian societies (hence, investment in girlsβ education by parents especially fathersβ may only be for short-term benefits). Inherent in the virilocality argument is the assumption that the
6 Implicit in this hypothesis according to Levine and Kevane (2003) is the idea that parents
who invest in daughtersβ education create a positive externality, but this externality is not expected to reduce investment in daughters if the in-laws or groom can make a payment necessary to internalize the externality (bride price). Also, Garg and Murdoch (1998) suggest that in Ghana women are more likely to move out, and since the marriage markets does not work perfectly to compensate for daughtersβ investment, the full returns to sons is often higher than the returns to daughtersβ.
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girlβs parents are not compensated by the boyβs family for any investments in the girlβs education (Levine and Kevane, 2003). Parents may therefore provide daughters with the level of education necessary to improve their chances of finding a wealthy suitor. The education of the child, πΈπ·ππΆ has both direct and indirect costs, ππ. The direct costs of education may include tuition fees, Parent Teacher Association (PTA) levies, costs of books, transportation and other stationaries. The indirect costs are the opportunity costs associated with schooling. The price of education is expected to be high for children in households with poor access to basic amenities (indicator of wealth). This is because parents consider the opportunity cost of sending children to school as the loss of childrenβs labour activities, such as, collecting firewood and fetching water when households do not have access to basic amenities.
In period two, consumption by parents is largely dependent on the wealth or earnings of children, π. This is determined by an βearnings production functionβ that relates earnings to the childβs human capital investment, πΈπ·ππΆ. Hence wealth of the child, π = π(πΈπ·ππΆ). The lack of a strong welfare support system in Ghana implies that parents receive a share, π€ in the childβs future earnings, π. Parents share, π€, is dependent on the gender of the child, π; and also the relationship to the child (whether biological or non-biological). This will be greater in rural areas if the child is male and less if the child is female because of virilocality; and depends on the amount of education invested, i.e. π€ = π(π, πΈπ·ππΆ). The share of the childβs returns to education now becomes(1 β π)πΈπ·ππΆ. Assuming parents do well by their sons because sons provide alternative future source of finance, then, the share of the returns accruing to sons will be less than the shares accruing to daughters i.e. (1 β ππ) < (1 β ππ). π
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and π represent boys and girls respectively. Parentsβ consumption in the second period, πΆ2 becomes:
πΆ2 = π½1ππ+ π½2ππ, (1)
where π½ is the rate of transfers per unit of wealth of the child.
The model also assumes that parents are altruistic,π΄, but only towards their own-birth children and so care about them as much as they care about themselves. Altruism is reflected by a linear combination of parental preferences over the education of their children. Educated parents can and may wish to invest more in the education of their children than less educated parents. The degree of altruism is also assumed to depend on the gender of the child. Thus, π΄ = π΄(π, ππ΄π πΈπ·ππΆ). Since the degree of altruism depends on whether or not children are biological or fostered, the education of non-biological children could suffer relative to the education of own-birth children if parents are altruistic. With these assumptions, parentsβ utility function (maximised over both periods) becomes:
π = π β ( ππ)πΈπ·ππΆ + π€(πΈπ·ππΆ) + π΄(1 β π€)πΈπ·ππΆ (2)
Parents will maximise their utility based on their income constraint,π, cost of educating the child, ππ, their level of altruism, π΄ and consumption from transfers from children in period two, πΆ2. For non-biological children and where parents are less altruistic, π΄ = 0.
The reduced-form equations for boysβ and girlsβ schooling enrolment estimated are a function of;
πΈπ·ππΆπ = π(ππ΄π πΈπ·ππΆ, π) (3)
where π represents whether the individual is boy or girl. X is a vector of individual and household characteristics such as age, region, religion, access to household amenities,
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and occupation of father. For children in urban areas we expect little or no gender penalty in education. In rural areas, girlsβ education relative to boysβ education is expected to suffer because of virilocality and the benefits sons may have as a result of contribution to parentsβ future finances.
Priori expectations are that educated parents will invest in their childrenβs education in both rural and urban areas. Particularly for children in rural areas, since parents have limited access to financial facilities, investment in childrenβs schooling can serve as a means of providing financial security in old age through increased transfer payments (Lillard and Willis, 1997). Hence, educated rural parents may invest in their childrenβs education if they expect future financial support from children. In urban areas, parents may face less financial constraints because of access to credit facilities (Becker, 1991), savings, and pensions. Hence, educated urban parents may therefore be less reliant on children as a source of future financial support compared with rural parents. The effects of educated parents on childrenβs schooling enrolment may therefore be more important for children in rural areas compared with children in urban areas.
The effect of parental education, and rural/urban location on the schooling enrolment of non-biological children could go either way. For financial constrained parents, educating non-biological children could provide additional future financial benefits. On the other hand, non-biological childrenβs education could also be negatively affected if parents prefer that these children simply provide additional household support. Figure 2.1 shows parentsβ education investment decisions in rural and urban areas.
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Figure 2. 1 Differences in schooling decision in rural and urban areas
In figure 2.1, because rural parents face higher interest rates compared with urban parents, children in rural areas receive less years of education. In addition, due to rural parents being more traditional with a pro-son belief, boysβ rather than girlsβ receive higher levels of educational investment. This is shown by π·π and π·π where the demand for boysβ education is higher than the demand for girlsβ education, corresponding to increased years of schooling, πΈπ·ππΆπ(ππ’πππ) for boys. On the contrary, in urban areas where parents are wealthy (more educated) and consequently less traditional, they are faced with lower interest rates, and are therefore able to provide their children with more years of schooling, πΈπ·ππΆπ(π’ππππ)and πΈπ·ππΆπ(π’ππππ), which is greater than the years of schooling received by rural boys and girls.