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

Education is a crucial component of human capital and make a contribution to social welfare. In rural 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 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 years delayed in school. However, it finds that the transitory income results in an increase in household education expenditures conditional on child's attendance at school. Further evidence shows that the interaction between income risk and borrowing constraints has no effect on household schooling decision. These findings suggest that in addition to household socioeconomic status, children's human capital is at risk mainly due to income uncertainty and the absence of well-developed financial and insurance markets.