Complementarity and Substitutability in the Production of Early Human Capital

Abstract

This paper uses data from a randomized trial of an early childhood education program to estimate production functions of early-life human capital. We allow the initial stock of human capital to interact with childcare and parental investments in children. Our production functions display dynamic complementarity in childcare and dynamic substitutability in parental investments. Childcare is more productive for children with a higher stock of initial human capital, while parental investment is more beneficial for children with a lower stock. Our findings indicate that policies to remediate socio-economic inequality in early childhood should improve childcare provision and also target parenting practices.

Keywords: Childcare, Early Childhood Education, Dynamic Complementarity, Parental Investment, Production Function of Skills, Randomized Trials

JEL Classification: J13, I20, I24, I28