Long‐term impacts of an early childhood shock on human capital: Evidence from the 1999 economic crisis in Ecuador

Abstract

AbstractThis paper provides evidence on the lasting effects of the 1999 economic crisis in Ecuador on human capital formation. We show for children born during the crisis that the negative repercussions are still observable more than 10 years after macroeconomic recovery. Taking advantage of micro‐level data collected in 2012 and 2014, we assess long‐term impacts on health and education. After controlling for age‐in‐months and survey effects as well as a linear birth year‐cohort trend that varies by region, we find that after 12–16 years, the cohorts born during the recession report height‐for‐age Z‐scores that are 0.003 standard deviations (SDs) lower for each month of exposure and have 0.002 fewer years of schooling per month exposed compared to the cohorts born outside the recession years. Children exposed to the entire crisis are 0.063 SDs smaller and have 0.042 years less of schooling. Girls have lower health outcomes than boys. Concomitantly, we show that selective childbearing or excess infant mortality are unlikely to drive our results. The persistence of the negative effects points to the existence of a poverty trap suggesting that policy interventions in response to (economic) crizes should be extended beyond macroeconomic recovery to counteract long‐term, micro‐level consequences.