All for One? Family Size and Children’s Educational Distribution Under Credit Constraints

Economists have been examining parents’ decisions about their offspring’s education in the context of “quantity-quality tradeoff” (e.g., Angrist, Lavy and Schlosser 2010) or “birth order effects” (e.g., Black, Devereux and Salvanes 2007). This paper contributes to both literatures by examining the possibility that a child’s schooling can be increased by having more siblings, instead of being diminished by competition for parents’ resources, as has been suggested in most of the literature. Specifically, parents unable to borrow or self-finance their children’s education may rely on some of their older children’s labor income as a source of funding. Then the child(ren) selected for education will benefit from having more siblings who support him/her (them). This implies that the relationship between family size and education, and the relationship between birth order and years of schooling may be systematically different across families depending on their access to assets and borrowing resources. We first examine these relationships in a model combining convex returns to education and credit constraints. Our model predicts correlations among family size, years of schooling and birth order, which would not exist when either of these two elements is absent. In particular, for credit constrained parents, our model predicts a positive correlation between family size and educational level of the most educated child. It also predicts that the schooling of a child will be positively correlated with his/her birth order as well as with the fraction of female siblings (for males) when gender-biased norms exist. However, we show that these relationships weaken or disappear for parents with larger assets. Second, we examine the model implications using datasets from the U.S., Mexico, and South Korea (herein Korea). These countries are chosen not only because they have data on educational attainment of all adult children in a family but also because they are at Lafortune: Department of Economics, Instituto de Economı́a Pontifićıa Universidad Católica de Chile, [email protected]. Lee: Department of Economics, University of Maryland, [email protected].