Childhood Economic Resources, Academic Performance, and the Choice to Leave School at Age Sixteen

Abstract

This paper uses a recent panel data set from New Zealand to examine the link between academic performance and the decision of teenagers to leave school. These choices have significant lifetime economic impacts, since early school leaving in many cases closes pathways to further education. We address the potential endogeneity and error correlation of academic performance and later school-leaving choices. The results show that schooling decisions largely represent personal choice, and that they are influenced by factors that are at work for a long period of time. Personal ability, parental education and income during early and later childhood years influence the demand for education, exerting their influence directly and through academic performance. These results point to the role that academic performance could play in breaking cycles of disadvantage.