Complementarities and intergenerational educational mobility: Theory and evidence from Indonesia

We adapt the Becker et al. (2015) model to study intergenerational educational mobility in Indonesia with a focus on the role of complementarities. We develop an empirical methodology for testing whether parental financial investment is complementary to school quality and parent’s education. The empirical analysis is based on two estimating equations derived from the model: a quadratic mobility equation specifying the association between a father’s and his children’s schooling, and a linear investment equation specifying the optimal financial investment in children’s schooling as a function of fathers’ schooling. We find that the mobility curve is convex in rural, and linear in urban areas, even though parental education is complementary to financial investment in both locations. School quality is complementary to investment in all rural households but only in educated urban households. It is a substitute in uneducated urban households. Public investment in school quality is expected to improve absolute mobility in most households, but worsen relative mobility.