Estimating unmeasured variables in development: quantifying faith in an economic model of human capital
Date
2020
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Publisher
University of Delaware
Abstract
Two unique contributions to economic literature are a method to measure faith validly from non-religious World Bank survey data and the robust inclusion of this faith variable in a standard Mincer model of returns to human capital. Behrman and Deolalikar found returns to schooling are overestimated in an OLS regression when significant unmeasured household variables are excluded. However, they did not suggest what variables were excluded. Historically, aspects of culture or character, identified from the individual to national levels, have been used as proxies for such qualitative variables and then correlated with earnings, which is a proxy for outcomes. Culture and character certainly can appear at the household level and correlate with both macro- and microeconomic outcomes. Yet, though such variables are recognized as determinants of economic outcomes, often they are excluded due to challenges in measuring the subjective data. This paper employs a theory from human development literature to research Faith Maturity as a universal, non-religious trait to better estimate Behrman and Deolalikar’s unmeasured household variables. The study adapts qualitative World Bank Surveys from Albania 2002—2004 to estimate faith maturity in households as related to individual wage rates. The results find a typical 6.4% return to schooling and a 25% return per level of faith, with two levels possible. Results do not show excluding this variable over-inflated returns to schooling.
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Keywords
Development Economics, Economic Development, Faith Development, Fowler, Human Capital, Returns to Schooling