Parents' Investments in the Quality of Education : The Case of Ghana

While school enrollment at the primary level has been rising in developing countries rapidly, international measures of education quality, especially in basic knowledge of reading and math, do not exhibit a parallel improvement. Since parents' expenditure is an important determinant of children's school performance, we investigate parents' investments in the quality of the child's education, measured by their spending on books and other school materials. We develop an overlapping generations model, in which we consider families' expenditure as an input to their children's human capital. Moreover, in our model parents will use the current status of their children's human capital as a screening measure for adjusting their investment, instead of the standard tradition of simply balancing the trade-off between future income and the current stream of direct and indirect school costs. Using our theoretical analysis, our main hypothesis is that families consider better school performance to be a reliable predictor of future return, and this will incentivize them to invest more, considering other determinants of children's schooling output, school quality for example. Empirically, we use an instrumental variables approach to test our main hypothesis, and it is accepted using data for Ghanaian primary school students in rural areas