Two papers were presented under the theme of Nutrition, Health, and Human Capital Formation: in the first, Thomas and Frankenberg study the long-term impact of shocks on long-term health and human capital; in the second, Schofield, Schilbach, and Boswell Dean attempt to formalize the effect of poverty on current cognitive function and how feedback loops between cognitive function and poverty hamper the ability to escape poverty.
Duncan Thomas and Elizabeth Frankenberg identify relationships among nutrition, health, and human capital through their study of the short- and long-term childhood impacts of three major shocks: the Spanish Flu outbreak of 1919, the East Asian Financial Crisis of 1997-2002, and the Indonesian Tsunami of 2004. Using birth year and infection rates to identify impacts, they find that the flu outbreak seemed to have some impact on education outcomes, but these that these impacts become insignificant when parental characteristics are taken into account. Households affected by the financial crisis exhibited enormous and flexible responses that all but negated potential impacts on children: mothers’ BMI dropped, but there was no impact on height-for-age (and only minimal and short-term impact on weight-for-age) for young children; some children dropped out of primary school, but were able to return later; and households took steps to mitigate impacts on food consumption, moving to rural areas where the cost of living was lower, taking on extra work, and/or cutting spending on non-food expenditures and selling assets like jewelry. The Tsunami caused widespread death and destruction, and had relatively important short-term impacts on height-for-age for children in utero at the time of the crisis. Reconstruction and recovery was rapid, however, and these impacts were fully reversed within a few years.
In his discussant remarks, John Hoddinott summarized the deep complementarities within the nutrition, health, and human capital formation theme in terms of the following pathway: shocks that lead to chronic under-nutrition, particularly among small children, have high potential to impair cognitive development, which may in turn lead to adverse economic outcomes in adulthood. Thus, a poverty trap can be created and/or perpetuated.
This latter link, between cognitive development and poverty, is investigated by Heather Schofield and co-authors, Frank Schilbach and Emma Boswell Dean, who lay out the likely two-way connection between poverty and cognition, with many possible pathways such as nutrition and limited mental capacity. This innovative work on the relationship between poverty and cognitive function is an exciting and very new area of research in economics. The effect of poverty during childhood on the long-term measures of ability and personality characteristics have long been shown to be large by eminent researchers such as James Heckman. However, the work of Mani, Mullainathan, and Shafir published in Science in 2013 illustrates that poverty itself could have significant short-term effects on cognitive and executive function. Mani et al (2013) show that priming the poor to think about their financial difficulties reduced their performance on cognitive tasks by almost one standard deviation. In standard IQ measures, this is equivalent to losing ~13 IQ points, or what one would expect after losing a full night of sleep.
The mechanism through which cognitive function is negatively affected was a little bit of a black box for economists. Mullainathan and Shafir propose that the decrease in cognitive function occurs due to limited mental bandwidth that is strained under poverty. Moreover, the way in which an impeded cognitive function could affect one’s economic status was rather vague. Schofield, Schilbach, and Boswell Dean step in to fill some of these gaps and, using well-developed research in psychology, outline four different elements of cognitive function, how to measure them, and provide a summary of where the research currently stand in terms of incorporating these functions into economic analysis and modeling economic decision-making.
The four different elements of cognitive function that can impact poverty include: attention, the ‘pre-curser’ to further processing and memory; inhibitory control, or the ability to overcome natural or habitual responses; short-term and long-term memory; and higher-order cognitive function, or the ability to adapt to changes and reason through a problem using stored knowledge. Although available studies are still too short term to make firm links between cognition and poverty traps, the paper emphasizes the potential importance of each of these for poverty, as well as the ability to measure each distinctly with relatively simple tests (while work needs to be done to adapt these tests to developing country settings).
The psychology of poverty and how it affects economic decision-making is a small but growing area of research among economists. A more thorough and nuanced understanding of decision-making under poverty, however, will allow for better development policy. As economists, we have mostly accepted that relaxing assumptions about rationality does indeed improve our models of economic decision-making. We have analyzed the persistence of poverty and poverty traps using models of long-term decision-making. Decision-making, planning, and executing plans are inherently cognitive processes and recent research has shown that poverty itself impedes cognitive function. Poverty itself could potentially make it more difficult to make correct decisions to escape poverty. This feedback loop suggests a cognitive poverty trap.
This is an interesting and new line of research in economics. Behavioral economics has helped economists model economic decision-making in ways that better fit observed behavior. However, decision-making under poverty is poorly understood, and a new wave of behavioral economics researchers is attempting to understand how psychological conditions of poverty affect decision-making. Cognitive function is one mechanism, but other psychological conditions common in poverty such as depression (de Quidt and Haushofer) and low aspirations (Wydick and Lybbert) were also presented at this workshop as potential mechanisms that create poverty traps through their effects on decision making.
Both areas for future research, and associated challenges, abound along the entirety of this shock->nutrition->cognition->poverty pathway. Identifying shocks is difficult, for starters; and even short-term responses to shocks, while often measurable, are multi-dimensional and complex. In turn, we care here more about the longer-term impacts, the measurement of which requires the exceedingly rare gem of long-term panel data. Measuring cognition, then, to relate these impacts to poverty, has as yet only been made feasible through experimental studies like the one Schofield describes; but these experiments are inherently short-term in nature, while the ultimate questions about poverty, and especially poverty traps, are long-term phenomena. Hence, these papers open a Pandora’s box from the point of view of the research agenda, which demands not only more investigation in different contexts but innovations in both methods and persistent data collection.