The Production Function of Cognitive Skills: Health, Parental Inputs and Caste Test Gaps in India

Florencia Lopez Boo, Inter-American Development Bank/IZA

This paper explores the determinants of children's cognitive outcomes using novel panel data from India. As in Todd andWolpin's (2007) I do not find evidence supporting restrictive models that assume test scores depend only on contemporaneous inputs. Alternatively, the results show that lagged inputs matter in the production of current skills. In models where past inputs are not observed or imperfectly measured, past health and/or past test scores turn out to be a good proxy-indicator of this variable. Using an IV approach I find that 1 SD increase in HAZ at the age of 1 leads to cognitive test scores that are on average 24 per cent of 1 SD higher at age 5. I also study the behaviour of inputs and find that parents seem to 'reinforce' rather than 'compensate' children on test scores, and they do so more in lower caste families and particularly with boys.