Grant Period : Mar 2022 - Apr 2025
Faculty : Pei GAO
Evidence around the globe shows that opportunities in education, public health, etc. are substantially unequally distributed across geographic, racial, or socioeconomic strata. This wide disparity in access to opportunities is particularly worrying for children, as access to opportunities during childhood could largely shape long-term outcomes (e.g., Chetty, Hendren and Katz 2016; Chetty and Hendren 2018; Chyn 2018; Bergman et al. 2019). Therefore, governments all over the world have long viewed promoting equal opportunities for children as an important policy goal.
This raises the question of when better opportunity presents itself, do people respond to it? To investigate this question, this paper examines how parental investment respond to changes in the educational opportunities. Specifically, we look at an unique quasi-experimental setting that brought a sudden improvement in chances to attend public high-performing schools, and examine its impact on parental investment in their children.
Understanding what factors could drive up parental investment is of paramount importance. Apart from the wide disparities in opportunities, parental investment in their children also varies considerably across families; and the variation in parental input in children is believed to be an important source of persistent international inequality. In addition, parental input not only shapes child development outcomes, their decisions to compensate or neglect any disparities in school education may supplement or undermine the public investment made in children.
To investigate this research question, this project first uses a unique dataset—universal bankcard transactions of cardholders residing in three districts in Shanghai— to trace the amount of cardholders’ bankcard spending on their children. Second, empirically examining the casual effect of educational opportunities on parental investment is difficult because a child’s access to educational opportunities is far from random.
This project exploits a unique district merger in Shanghai, which introduced a plausibly exogenous increase in educational opportunities for children living in a disadvantaged district. A top-down administrative order unexpectedly merged the Zhabei district into its neighbor–Jing’an district in 2015. Before the merger, the population of ZB was more than three times that of JA, but the number of high-performing schools was roughly the same as in JA. The district merger effectively lifted the institutional barriers that had previously restricted cross-district applications to public high schools. As such, the merger markedly increased the chances of attending a high-performing school for students in ZB, which can be viewed as a positive shock on educational opportunities.
Employing a difference-in-differences strategy, we compare child-specific spending of cardholders in ZB district, who had received a positive educational opportunity shock, to that of cardholders in a control district who were not directly affected by the merger. We include card fixed effects in all specifications to control for time-invariant characteristics across cardholders. Our baseline results show that cardholders in ZB increased their spending on children significantly more than those in the control group after the announcement of the merger. The merger also led to a mild reduction in ZB cardholders’ spending on some items that are consumed exclusively by adults (e.g., coffee, alcohol and cosmetics). It is likely that cardholders cut down on adult-specific consumption to afford the increased investment in their children.
Furthermore, we also explore the heterogeneous effects of the merger depending on cardholders’ income. A large literature demonstrates that parental investment varies greatly across socioeconomic groups (Guryan, Hurst and Kearney, 2008; Ramey and Ramey, 2009; Cunha, Elo and Culhane, 2013), and lower-income parents tend to invest less in their children. Using total annual card spending before the merger as a proxy for cardholders’ income, we find that parental investment indeed varies widely across income groups. More importantly, asymmetric effects of the merger emerge when looking at the two types of spending on children.
Our preliminary findings show that the merger’s effect of increasing education-related spending falls with income; in contrast, the merger’s effect of increasing child-enrichment spending rises with income. The gains in education-related investment are greater for children with poorer parents is an encouraging effect, as it implies that promoting equal educational opportunities could potentially narrow the disparities in human capital formation among socioeconomic groups.
In short, to tackle this research question, this project innovatively uses massive bankcard transaction data to measure parental investment in children and carefully employs a casual identification strategy from the economic literature. To our best knowledge, this project provides the first direct empirical evidence on better opportunities of children indeed increase parental investment. The setting of this paper is distinctive in that the merger improved the opportunities of all pre-high-school aged children rather than guaranteeing a certain group of children the access to high-performing schools. As such, it could have the effect of raising the hopes of a larger group of children, including those who might not have eventually attended a high-performing school.
We believe that our findings could have general important policy implications. Equal access to educational opportunity has been a central plank of many policies. Traditional policy interventions, such as Moving to Opportunities and Head Start, often require substantial fiscal subsidies to be allocated to disadvantaged households (Currie and Thomas, 1995; Chetty, Hendren and Katz, 2016; Lavy, 2010; Gelber and Isen, 2013; Deming, Hastings, Kane and Staiger, 2014; Chyn, 2018) and, therefore, has a limit on its scale. This paper suggests a less financially burdensome solution. More importantly, this policy intervention would affect parental investment on a larger scale: as it does not focus on specific groups or beneficiaries, the improved access to educational resources is experienced widely and generally. In other words, all families that have pre-high-school aged children could perceive a greater possibility of accessing higher-quality education and be incentivized to invest more in their children.