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Beyond The Average: Peer Heterogeneity and Intergenerational Transmission of Education
It is widely recognized that educational attainment of individuals is affected not only by parental education, but also by the skill composition of the local parental peer group. However, estimating the inﬂuence of neighbors on human capital investment decisions of parents is complicated by the endogeneity of location choice. More educated parents tend to locate in regions with more educated neighbors and also care more about their children’s education. We exploit a rare policy experiment in Germany to identify the causal impact of parental peers on the educational outcomes of their children. In particular, we investigate parental peer effects in the context of immigrant children. The fall of the Iron Curtain caused a passive inﬂow of ethnic Germans living in the former Soviet Union and the Warsaw Pact countries into Germany. To avoid unbalanced in-migration mainly to few speciﬁc regions, ethnic Germans were allocated across the country according to location rules which were exogenous to the immigrants’ skill level. We exploit this exogenous placement as a quasi-experiment to avoid the problem of endogenous location choice and to identify the causal impact of parental peers on educational attainment of children. We are interested in estimating the impact of parental peers on education outcomes of child immigrants because this group holds a key position with respect to migrants’ long-term economic progression in the host country labor market. Our ﬁndings suggest a strong learning effect among parents. Educational attainment of children is higher when parents are exogenously placed in more educated neighborhoods. Most interestingly, the low educated parents gain more from having highly educated neighbors compared to high educated parents. In contrast, we do not ﬁnd any negative inﬂuence of the low educated neighbors. Our results are robust to a variety of alternative speciﬁcations and to carefully controlling for common drivers at the local level.
Tanika joined IZA as a Research Fellow in May 2009. Since August 2011 she is an Assistant Professor at the Indian Institute of Technology, Kanpur. Prior to joining IIT Kanpur, she worked as a Research Associate at DIW Berlin from August 2009 to August 2011. She completed her PhD in Economics from Washington University in St Louis in May 2009. Her research interests include Development Economics, Labor Economics, Decision making within the household.
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