The economics of inequality and human capital development : evidence from Nepal

Abstract

This thesis has three pieces of empirical studies that analyse economic inequality across social groups (castes and gender) and its impact on human capital endowments in developing countries with particular reference to Nepal. Three aspects of inequalities have been examined: disincentive in educational attainment in female arising from labour market discrimination, disproportional representation of low-caste workers in better jobs and inequity in health care utilisation and health outcomes across castes. This study contributes to the literature of economics by developing a new theory and extending existing econometric models in analysing economic inequality across social groups. The rst piece of research examines the impact of marital anticipation on female education in the presence of labour market discrimination. It develops a theoretical model for jointly determining the age at marriage and female education. The model hypothesizes that as females are not rewarded in the labour market as much as men are; married women are encouraged to engage in household work as a result of the intra-household division of labour in their marital union. Thus, parental anticipation of this e ect a ects their daughter's age at marriage and can in uence investment in girls' schooling. It then estimates the causal e ect of age at marriage on education in light of the theoretical model using household data from Nepal. In order to control for potential reverse causality this study uses variation in cultural norms regarding dowry and di erences in average age of female marriage among ethnicities and regions as instrumental variables. The econometric results con rm that the gender gap in education is signi cantly a ected by cultural practices that favour early marriage and that increasing girls' marriage age by one year would produce on average :4 year increment in women's schooling. The second study examines the sources of wage di erentials across castes in Nepal by employing an extended form of Oaxaca decomposition methodology. This study shows that, in countries such as Nepal which have imperfect labour market for both goods and services, the conventional Oaxaca decomposition methodology fails to estimate the source of wage di erential precisely. Thus, it estimates the sources of caste wage di erential by using an extended model of occupational choice, rm size distribution and the interaction between these two along with the conventionally used measures of human capital endowments. Furthermore, it examines the caste di erences in the likelihood of access to jobs in large rms. Results indicate that the lack of access to better paying occupations and larger rms have signi cant impact on caste wage di erential. In addition, it evaluates the impact of government policy interventions on caste wage di erential in Nepal and shows that the government policy of `a rmative action' has not yet been e ective in narrowing down the caste wage di erential in the labour market. The third piece of research evaluates caste- inequity in health care utilisation and examines the determinants of Self-Assessed Health (SAH) status across castes. It argues that societies with a caste based social strati cation in the past perpetuate health sector inequity via inferior social capital in historically discriminated-against castes. Additionally, this study evaluates the e ectiveness of the health policy of the Government of Nepal (GoN) that aims to support poor and vulnerable people and consequently to promote equity. The empirical evidences reveal that in a social setting of caste classi cation the historically discriminated-against caste groups, low castes, face both inequities in health care utilisation and health outcomes. Nevertheless, both types of inequities are decreasing over time this study did not nd explicit evidences in favour of the e ectiveness of government health policy intervention.