1 Parental Compensatory Behaviors and Early Child Health Outcomes in Cebu, Philippines* Haiyong Liu Department of Economics East Carolina University Thomas Mroz Department of Economics Clemson University Linda Adair Department of Nutrition Carolina Population Center University of North Carolina at Chapel Hill July 2008 Abstract: A dynamic optimization model of parents choosing investments in their children’s health motivates an empirical model of parents’ choices of health inputs for their children and the impacts of these decisions on their children’s subsequent health. Estimates of the child health input demand functions and the child health production functions from the Cebu Longitudinal Health and Nutrition Survey accord with the prediction that optimizing behavior results in higher levels of aggregate child health. Observable parental behaviors respond to the physical developmental status of their children. These parental responses appear to yield large and statistically significant improvements in children’s early physiological outcomes. However, because some health inputs choices are not observable, it is impossible to ascertain whether these measured effects are due solely to variations in the observed input choices. JEL Codes: I12, J13 Keywords: health production function, parental health inputs, unobserved heterogeneity *We thank two referees and the editor for extensive and insightful comments on earlier versions of this paper. We also thank seminar participants at the 2006 Southern Economic Association meetings, University of Virginia, Ohio State University, and University of Regensburg for comments and discussions. Corresponding author: Thomas A. Mroz, Department of Economic, 222 Sirrine Hall, Clemson University, Clemson, SC 29634; Tel: 864-656-3142; Email: [email protected] 1. Introduction This study explores the determinants of parents’ behaviors that can influence their children’s early childhood development and the impacts of these actions on their children. It traces how birth outcomes and children’s growth over the first two years of life influence parents’ decisions about breast-feeding, supplemental feeding, preventative health care, maternal work decisions, and timely vaccinations. We assess how these endogenous, compensatory behaviors appear to affect the growth of children throughout these formative years, and we include a detailed discussion of some key issues in interpreting these estimated effects that arise because one cannot observe all of the inputs that parents choose to influence their children’s physiological development. From a biomedical perspective, the first two years of life is a critical period for cognitive development, during which nutritional deficits are hypothesized to directly limit the growth and development of the brain (Smart 1998, Lozoff 1998). Biomedical scientists conclude that anthropometric indicators of poor nutritional status are consistently associated with poor cognitive outcomes. In less developed countries, the inadequate living environment poses a great threat to the child’s growth and cognitive development, which in turn could affect learning ability and school achievement, and ultimately limit the performance in the labor market. There has been a great deal of emphasis on early child development programs in less developed countries, as witnessed recently by large investments in such programs by the World Bank and the Asian Development Bank. Social scientists also have concluded that there are strong effects of mothers’ education and household income on child health outcomes (see Behrman and Taubman 1990; Blau 1999; Duncan, Brooks-Gunn, and Klebanov 1994). Nevertheless, we have little understanding about the underlying relationship between these socioeconomic factors and parents’ health-related behaviors. At the same time, given that parents might determine the health inputs in response to their and their child’s observed and unobserved health-related characteristics, child health production studies without2 adequate control for endogeneity and unobserved heterogeneity can lead to biased estimates about the effects of health inputs. The limited understanding of the determinants of health-related behavior has undermined our ability to evaluate the health impact of these potential programs. In this paper we model and estimate the relationships among child outcomes, subsequent endogenous health inputs, and health outcomes. The results provide empirical evidence on the determinants of these health-related behaviors, as well as an assessment of the health consequences from parents adjusting their health behaviors in response to the child’s physiological development. Using the Cebu Longitudinal Health and Nutrition Survey (CLHNS), a comprehensive longitudinal data set collected in the Philippines, this study incorporates prenatal care information, birth outcomes, important subsequent parental inputs, and multiple measures of early childhood health outcomes. While many studies have examined the effects of prenatal care on pregnancy outcomes, little attention has been given to the decision and timing of prenatal care. We hypothesize that ceteris paribus initiating prenatal care earlier tends to be more beneficial. Using the CLHNS data, numerous studies have assessed the associative relationships between health inputs in early childhood and subsequent child outcomes. For instance, Adair (1999) uses a discrete time duration model to study the impacts of various factors on the probability of recovery from stunting among children who were stunted at age 2. She concludes that children with great growth potential at birth, indicated by high birth length and tall maternal stature, are more likely to recover from stunting at age 2. Mendez and Adair (1999) and Daniels and Adair (2004) investigate the association between a child’s nutritional status at age 2 and her predicted academic achievements through high school. They find a lingering effect of the early childhood nutrition status through high school. While remaining statistically significant, these estimated associations become smaller when additional socio-economic factors are controlled for. More importantly, considering the potential endogeneity of health inputs is not accounted for in these studies, the estimated effects may be biased.3 Several previously studies attempt to investigate the casual