Too Hard, Too Easy, or Just Right: Dynamic Complementarity and Substitutability in The Production of Skill

Juan Castro and Lucciano Villacorta
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Lucciano Villacorta: Central Bank of Chile

No 175, Working Papers from Peruvian Economic Association

Abstract: Evidence shows that skill attained early in the life of children can either increase (dynamic complementarity) or reduce (dynamic substitutability) the effect of inputs occurring later. We propose a novel production function of cognitive skill that allows the same input to exhibit both phenomena using the notion that learning is maximized when the skill already attained by the child matches the complexity of the input. We estimate this function using panel data on test scores and schooling for a large sample of Peruvian children, and a non-linear version of the Arellano-Bond GMM estimator. We find schooling exhibits dynamic complementarity when its complexity exceeds the child’s skill and dynamic substitutability otherwise.

Keywords: Production function of skill; dynamic complementarity; dynamic substitutability. (search for similar items in EconPapers)
JEL-codes: C33 O15 (search for similar items in EconPapers)
Date: 2020-12
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Citations: View citations in EconPapers (1)

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