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The Importance of Family, Friends and Location on the Development of Human Capital in Mid-Childhood and Early Adolescence

This paper documents gaps in two children’s psychosocial competencies, pride and self-esteem, by socioeconomic and locality gaps. It then examines how relationships with parents and peers act as determinants of these competencies and how improvements in relationships can close gaps. A cohort of Peruvian children and their siblings between the ages of 6 and 12 from the Young Lives survey is used for the analysis. Non-parametric analysis maps the differences by wealth and locality in children’s pride, self-esteem, and their relationship with peers and parents. Gaps are prevalent, but diminish as children age in all measures outside of peer relationships. Notably, parent-child relationships in rural households are worse than those in urban settings, illustrating one of the consequences of living in rural areas. Parametric analysis estimates wealth gradients and determinants of pride and self-esteem. The results show that relationships are hugely important, explaining between 50 to 80 percent of the variance in children’s pride and self-esteem together. While there are gaps at the mean, there is no evidence of wealth gradients in this sample for pride and self-esteem. The unique sibling’s aspect of the sample is exploited in a siblings difference model to improve identification, showing that the initial estimates are robust to household fixed effects. Decomposition results show that mean gaps in pride and self-esteem by wealth and locality can be closed by improving the parent-child relationship, with improvements of 21% in poor households and 80% for rural households. These estimates suggest that the previous literature which do not measure the quality of relationships provide lower bound estimates of the effect of parents on their children’s development. Policies which can improve these relationships, especially the parent-child relationship, are important for giving poorer children the essential human capital to overcome poverty in the future.