Household Shocks and Education Investments in Madagascar

This paper investigates the impact of exogenous shocks to household income, assets and labour supply on children's school attendance in Madagascar. The analysis uses a unique data set with 10 years of recall data on school attendance and household shocks. We find that the probability of a child dropping out of school increases significantly when the household experiences an illness, death or asset shock. We propose a test to distinguish whether the impact of shocks on school attendance can be attributed to credit constraints, labour market rigidities, or a combination of the two. The results suggest that credit constraints, rather than labour market rigidities, explain the inability of households in Madagascar to keep their children in school during times of economic stress.