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How advent of pension policy led to lower education in children: Case of Indonesia and Ghana

Summary:
Prof Natalie Bau of UCLA in this voxeu piece point to really interesting findings from her new research. She says that families funded children’s education so that latter could take care of former during old age. However, as pension policy was introduced, this old age care was not needed which led to decline in education! In the paper, I examine whether the introduction of government pension plans changed cultural practices in Indonesia and Ghana. I study a set of cultural traditions that determine whether daughters (matrilocal), sons (patrilocal), or neither gender (neolocal) continue to live with parents after marriage and care for them in their old age. In matrilocal ethnic groups, daughters stay with parents, while in patrilocal ethnic groups, sons stay with them. Traditionally,

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Prof Natalie Bau of UCLA in this voxeu piece point to really interesting findings from her new research.

She says that families funded children’s education so that latter could take care of former during old age. However, as pension policy was introduced, this old age care was not needed which led to decline in education!

In the paper, I examine whether the introduction of government pension plans changed cultural practices in Indonesia and Ghana. I study a set of cultural traditions that determine whether daughters (matrilocal), sons (patrilocal), or neither gender (neolocal) continue to live with parents after marriage and care for them in their old age. In matrilocal ethnic groups, daughters stay with parents, while in patrilocal ethnic groups, sons stay with them. Traditionally, both practices are widespread, and therefore potentially important determinants of economic behaviour. In anthropological data on 1,265 ethnic groups around the world, 69% are traditionally patrilocal and 16% are traditionally matrilocal (Morduck 1967). Studying these practices provides me with an unusual opportunity to measure how cultural practices change in response to new policies. This is because, unlike the practice of many other customs, whether households practice matrilocality or patrilocality can be directly observed in most census or survey data.

I hypothesise that when households belong to matrilocal ethnic groups, parents are relatively more likely to invest in their daughters’ education. This is because they will share in the returns from that educational investment when their daughter supports them in their old age. Similarly, parents from patrilocal ethnic groups will be relatively more likely to invest in a son’s education. I further hypothesise that when governments introduce pension policies, parents – who no longer need as much old-age support – will be less likely to transmit matrilocal and patrilocal traditions to their children. As a result, both the educational investment incentivised by these traditions and the practice of these traditions themselves will decline. So, the new social policies that often accompany economic growth may lead to the decline of traditional cultural practices. 

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To establish whether the Indonesia results apply in another, very different, context, I then turn to Ghana. Like Indonesia, Ghana instituted a pension plan in the 1970s. However, Ghana and Indonesia have very different cultural and religious make-ups. Indonesia is predominantly Muslim, and Ghana is predominantly Christian. While in Indonesia I compare traditionally matrilocal and non-matrilocal females, in Ghana the variation is between traditionally patrilocal and non-patrilocal males. Therefore, studying different genders and cultural traits in these very different countries provides further evidence that the results in Indonesia are not driven by an unobserved variable correlated specifically with matrilocality.

In Ghana, sons in traditionally patrilocal ethnic groups receive more educational investment (relative to their sisters) than sons in non-patrilocal groups, resulting in approximately 0.18 more years of schooling. The timing of the pension plan, which was introduced in 1972, allows me to evaluate whether traditionally patrilocal males who were more exposed to the plan as children behave differently. Indeed, these males were less likely to complete primary school and are less likely to practice patrilocality as adults. 

Altogether, the results from Indonesia and Ghana are symmetric. Matrilocality incentivises educational investment in females, while patrilocality incentivises it in males. The introduction of pension plans crowds out these educational investments and reduces traditional practices. So, though culture is often persistent, the introduction of new laws and policies can cause cultural change. 

Talk about unintended consequences of policy!

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Amol Agrawal
I am currently pursuing my PhD in economics. I have work-ex of nearly 10 years with most of those years spent figuring economic research in Mumbai’s financial sector.

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