Income Shocks, Borrowing Constraints, and Household Child Schooling: Evidence from Rural Thailand

Abstract

In rural areas of developing countries, shocks and financial constraints on households are generally recognized as obstacles to children’s schooling opportunities. This paper investigates the effects of income shocks and borrowing constraints on household demand for education in rural Thailand, using the Townsend Thai panel data spanning from 2013 to 2017. Information on annual rainfall at the provincial level is used to estimate a transitory income component for Thai rural households. Estimation results indicate that income risks and borrowing constraints have a substantial negative impact on child schooling outcomes, including educational attainment and the number of years delayed in school. It also finds that transitory income results in increased household education expenditures conditional on children’s attendance at school. These findings suggest that in addition to households’ socioeconomic status, children’s human capital is at risk mainly due to income uncertainty and the absence of well-developed financial and insurance markets.