How Socioeconomic and Parental Background Shape Peer Networks and Educational Spillovers

Abstract

This paper examines how socioeconomic background and student characteristics influence friendship formation and educational outcomes. We take advantage of the combination of survey data combined with a rich set of registry data to observe both student friendships and detailed information on parental and socioeconomic backgrounds. We find significant effects of parental background-specifically age, ethnic background, and social security status-on student friendship formation. Parental income also plays a role, though we find no significant effects of parental wealth. The strongest determinants of friendship formation are shared gender and class membership, along with evidence of assortative matching based on academic skills. To estimate peer effects, we instrument for friends' academic performance using pre-existing skill measures. Our results indicate substantial spillovers: a one-standard-deviation increase in friends' GPA leads to approximately a 0.62 standard deviation increase in a student's own GPA. We leverage these findings to assess how classroom structure shapes academic outcomes through its influence on student friendships. We demonstrate that the realized social network significantly impacts individual achievement, suggesting that policies targeting peer interactions could be an effective tool for improving student outcomes.

Keywords: Network formation, Peer effects, Education

JEL Classification: I21, I24