Do Parents learn from their Neighbors? Evidence on Educational Externalities from a Unique Policy experiment

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IZA Seminar

Place: Schaumburg-Lippe-Str. 9, 53113 Bonn

Date: 27.06.2013, 12:15 - 13:30


Presentation by 

Tanika Chakraborty (Indian Institute of Management)


It is widely recognized that educational attainment of individuals is affected not only by parental education, but also by the skill composition of the local parental peer group. However, estimating the influence of neighbors on human capital investment decisions of parents is complicated by the endogeneity of location choice. More educated parents tend to locate in regions with more educated neighbors and also care more about their children's education. We exploit a rare policy experiment in Germany to identify the causal impact of parental peers on the educational outcomes of their children. In particular, we investigate parental peer effects in the context of immigrant children. The fall of the Iron Curtain caused a massive inflow of ethnic Germans living in the former Soviet Union and the Warsaw Pact countries into Germany. To avoid unbalanced in-migration mainly to few specific regions, ethnic Germans were allocated across the country according to location rules which were exogenous to the immigrants' skill level. We exploit this exogenous placement as a quasi-experiment to avoid the problem of endogenous location choice and to identify the causal impact of parental peers on educational attainment of children. Our approach builds upon previous literature using exogenous location of refugees in Denmark and Sweden. We add an intergenerational perspective to this stream of research and focus on a group of immigrants which is more similar to labor migrants rather than to refugees or asylum seekers. We are interested in estimating the impact of parental peers on education outcomes of child immigrants because this group holds a key position with respect to migrants' long-term economic progression in the host country labor market. Preliminary findings suggest a strong learning effect among parents. Educational attainment of children is higher when parents are exogenously placed in more educated neighborhoods. Most interestingly, the low educated parents gain more from having highly educated neighbors compared to high educated parents. Our results are robust to a variety of alternative specifications and to carefully controlling for common drivers at the local level.

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