Behavior of Households Contributing in Macroeconomics and Development

My research has focussed fundamentally on the behaviour of households that contribute in areas such as macroeconomics and development seeking to generate new tools to understand household decisions in developing countries related to foster investment in children’s human capital. Early childhood development is essential when we want to improve society as a whole. An increasing body of studies in neuroscience, psychology and economics, shows that the first three years of life are critical for the future development of children. In particular, Heckman et al.

(2006)’ find that cognitive and non-cognitive ability are critical to the future performance on a series of social and labour market outcomes: enrolment rates, wages, work experience, crime rates, early pregnancies, drug use in the labour market, among others. Hence, stimulation of these abilities plays a crucial role on the child’s future and in the social development of future generations.

Heckman and Masterov (2007)2 show in a cost-benefit analysis that a right investment in early life has a greater economic return than the same investment for adults.

This effect is even stronger for most disadvantaged children, which has higher proportion in developing countries.  In terms of the state of the literature, the international evidence suggests that early childhood development is essential when we want to improve the success of our future children since early development provides the foundation for mental and physical health, and for academic and labour performance. There are two main branches of literature: one written by neuroscientists and psychologists and the other by economists.

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The reading of the first suggests that in early childhood it occurs the main development of the brain, which makes early stimulation particularly beneficial. At this stage. environmental stimulation in children results in the generation of new neural connections that alter brain organization.

Consequently, non-appropriate or lack of stimulation at all in early childhood, not only prevents the growth of neural connections but also makes their number diminish progressively. Meanwhile, the economic research in recent years has focused on analyzing two main points: first, if it really cognitive and non-cognitive abilities benefit from interventions during early childhood; and second, based on the findings from the first point (that cognitive and non—cognitive development begins early in childhood and that the most affected, without early interventions, are the most vulnerable children), what are the relevant determinants of early childhood development. Most studies using linear regression analysis states that socioeconomic status, parental» child interactions patterns, childcare centres, physical status, and home»learning environments, among others, are the main sources that affect children’s cognitive development. Most of our knowledge of childhood development research is conducted in the developed world and hence the evidence from Latin America is more limited.

This is mostly explained by the availability of high-quality and detailed data on children development. Nevertheless, there are important and substantial evidence found reinforcing the fact that poorer children appeared to have serious cognitive deficits in long and short term and also showing that parenting quality is associated with child cognitive development, Finally, in Chile the line of work is focussed more on increase the availability of high quality and detailed data on children to then analyze childhood development with adequate data. Today, Chile is one of the major industrialized countries in Latin America, In fact. in 2007, it achieved the status as the region’s richest country in terms of GDP per capita. It also has low unemployment rates, a stable monetary policy, political transparency and stability. However, according the OECD (2011) Chile is the country with greater inequalities among its population in terms of income relative to other OECD countries.

In this context, public policies aimed at early childhood are intended to tackle the problem of inequality, Based on the new collected data, provided by organizations such as Junta Nacional de Jardines Infantiles (JUNJI), UNICEF and UNESCO, Noboa and Urzua (2010)‘ using quasi-experimental methodologies found that the initial effect of children who attend to public child—care centres was negative; over time the effect on all areas of cognitive and non-cognitive abilities was positive. Reinforcing the above objective, a new survey called Encuesta Longitudinal de la Primera Infancia (ELPI) was raised in 2010 and allows researchers to assess the impact of early childhood policies and provide valuable information for the evaluation and design of social policies in this field. It is based on a representative sample of 15,000 children under 5 years old.

The objective is to collect demographic information and to measure cognitive and non-cognitive abilities of the population in Chile. The second round will be raise in March 2012. Thereby, progress on what is known has been made: early years and stimulation are vital as neuroscience. psychology and economics have established; physical status is significant; household environment is important; human capital is a multidimensional object and its different dimension are all crucial especially in the early years, but there is much is not known about childhood development: how physical status affect the development of abilities; how interacts the different aspects of human capital; what determines investment in human capital and how to build effective interventions in a society. The key element in my research is at the beginning, taking as a fact that early investment improves abilities in early childhood, disentangling the determinants of early childhood development identifying the variable that has the major impact in explaining both cognitive and non-cognitive abilities.

Preliminary own estimations, based on the ELPI survey, claim that parental investment (measured as parental- child activities, parental involvement and emotional responsibility) has a significant effect on early stage development. Ending with the major contribution to the existing international literature: what determines parental investment decisions in human capital. meaning cognitive and non-cognitive abilities, of children? To identify the mechanisms behind the decisions parents make about investing in their young children I plan to use a structural estimation of a dynamic behavioural model of parental decisions about investment in their children. This model includes how resources are allocated within the family and the constraints that parents must face to make decisions. In the dynamic behavioural model parents are assumed to make sequential decisions over a finite horizon about investment in the human capital of one of their children age 6 through 74 months old related principally with the decision of labour market participation.

The utility function will be given by parents that receive a utility flow from household consumption, from leisure, time-varying shocks that affect the marginal utility and permanent household heterogeneity with a terminal decision period that is equal to the age at which the child leaves home. Then, at any time, parents maximizes the present discounted value of lifetime utility where the solution to the optimization problem is a set of decision rules between the optimal choices given the state variables at t. In the proposed model, parental labour supply decision is whether or not the woman (or caregiver) participates in the labour market working and thus investing or not in their children in each period. To incorporate this decision into the model the leisure variable will be discrete taking values of 0 if does not participate in the labour market and 1 otherwise. Given the solution of the optimization problem is in general not analytic, the model will be solved numerically proceeding by backwards recursion beginning with the last decision period.

The contribution of my future research is imponant as it closes the circle with respect to childhood development: First, is known that early investment improves early childhood development (well documented), but investment on what? And then, disentangle the major determinant of early childhood development Finally, understand the process behind the major variable founded to increase the investment and hence improve the early childhood development. My research raise important questions about the relevance about quantity v/s quality evaluation, about the ideal form of early interventionism, about the implications on the optimal design, and about the implementation of an optimal and successful public policy designed to improve early child development and hence contributes providing implications for policy not only for developing countries but also for developed ones.