The causal effect of family income on child investment in Thailand: an instrumental variable approach using natural “natural experiments”

Abstract

The observed association between household income and children’s education cannot be interpreted as causal in the existence of potential income endogeneity. The non-natural factors often infringe on the orthogonality condition, even if they satisfy the relevance condition. Utilising a farm household survey, saline soil, and rainfall data from Thailand, this paper exploits natural experiments using actual natural factors as an instrumental variable to find valid instruments and check the robustness of the results using many estimators. The results show that, among the nine instrumental variables, rainfall amount and rainfall deviation are valid instruments for establishing the causal effect of income on a child’s education.