Skip to Main Content
HBS Home
  • About
  • Academic Programs
  • Alumni
  • Faculty & Research
  • Baker Library
  • Giving
  • Harvard Business Review
  • Initiatives
  • News
  • Recruit
  • Map / Directions
Faculty & Research
  • Faculty
  • Research
  • Featured Topics
  • Academic Units
  • …→
  • Harvard Business School→
  • Faculty & Research→
Publications
Publications
  • 2022
  • Working Paper

Investing in the Next Generation: The Long-Run Impacts of a Liquidity Shock

By: Patrick Agte, Arielle Bernhardt, Erica M. Field, Rohini Pande and Natalia Rigol
  • Format:Print
  • | Language:English
ShareBar

Abstract

How do poor entrepreneurs trade off investments in business enterprises versus children's human capital, and how do these choices influence intergenerational socio-economic mobility? To examine this, we exploit experimental variation in household income resulting from a one-time relaxation of household liquidity constraints (Field et al., 2013), and track schooling and business outcomes over the subsequent 11 years. On average, treatment households, who were made wealthier through the experiment, increase human capital investment such that their children are 35% more likely to attend college. However, schooling gains only accrue to children with literate parents, among whom college attendance nearly doubles. In contrast, treatment effects on investment among the illiterate accrue only on the business margin and are accompanied by adverse educational outcomes for children. As a result, treatment lowers relative educational mobility. In a forecasting exercise, we find that earnings gains for literate households are four times larger than the earnings gains for illiterate households, raising earnings inequality. Our findings highlight how parental investment choices can contribute to a growth in intergenerational earnings inequality despite reductions in urban poverty.

Keywords

Socio-economic Mobility; Household; Financial Liquidity; Human Capital; Investment; Education

Citation

Agte, Patrick, Arielle Bernhardt, Erica M. Field, Rohini Pande, and Natalia Rigol. "Investing in the Next Generation: The Long-Run Impacts of a Liquidity Shock." NBER Working Paper Series, No. 29816, March 2022.
  • Find it at Harvard
  • Read Now

About The Author

Natalia Rigol

Entrepreneurial Management
→More Publications

More from the Authors

    • March 2022
    • American Economic Review

    Targeting High Ability Entrepreneurs Using Community Information: Mechanism Design in the Field

    By: Reshmaan Hussam, Natalia Rigol and Benjamin N. Roth
    • 2022
    • Faculty Research

    Understanding Rural Households' Time Use in a Developing Setting: Validating a Low-Cost Time Use Module

    By: Erica M Field, Rohini Pande, Natalia Rigol, Simone G. Schaner, Elena M. Stacy and Charity M. Troyer Moore
    • January 2022
    • American Economic Journal: Applied Economics

    Rational Habit Formation: Experimental Evidence from Handwashing in India

    By: Reshmaan Hussam, Atonu Rabbani, Giovanni Reggiani and Natalia Rigol
More from the Authors
  • Targeting High Ability Entrepreneurs Using Community Information: Mechanism Design in the Field By: Reshmaan Hussam, Natalia Rigol and Benjamin N. Roth
  • Understanding Rural Households' Time Use in a Developing Setting: Validating a Low-Cost Time Use Module By: Erica M Field, Rohini Pande, Natalia Rigol, Simone G. Schaner, Elena M. Stacy and Charity M. Troyer Moore
  • Rational Habit Formation: Experimental Evidence from Handwashing in India By: Reshmaan Hussam, Atonu Rabbani, Giovanni Reggiani and Natalia Rigol
ǁ
Campus Map
Harvard Business School
Soldiers Field
Boston, MA 02163
→Map & Directions
→More Contact Information
  • Make a Gift
  • Site Map
  • Jobs
  • Harvard University
  • Trademarks
  • Policies
  • Accessibility
  • Digital Accessibility
Copyright © President & Fellows of Harvard College