The Effect of Business Cycles on Child Health in Developing Economies: Evidence from Ethiopia

Human capital investment in child health is especially important in developing economies as a means to enhance economic welfare. In this paper we investigate the effect of early lifetime and contemporary local business cycle on child anthropometric measurements and morbidity in a developing economy. Linking data from the Ethiopian Rural Households Panel Survey Data with district level monthly rainfall precipitation, we find that child health responds counter-cyclically to both early and contemporaneous local business cycles. To examine the channel of transmission, we estimate the effect of district level rainfall precipitation on major inputs of child health production: mothers’ and older sisters’ labor force participation, and childcare time investment and households’ food consumption. We find that older sisters’ and mothers’ labor force participation in farm and non-farm activities and households’ food consumption respond pro-cyclically; while childcare time investment responds counter-cyclically. This implies that while higher rainfall increases a household’s budget for food, it also increases the opportunity cost of childcare time. This result, surprisingly, suggests that opportunity cost of childcare-unlike results from similar studies in developing economies-dominates the income effect in determining child human capital production. This is because major health inputs such as health stations visit for a routine health checkup, and fetching drinking waters and cooking materials although inexpensive, for households in developing countries, they are time intensive.

JEL:E32,I15,J13,J24,J29

Keywords:Child health, Human capital investment, Business Cycles, Weather shock