What You Don’t Know CAN Hurt You—Or at Least Mislead You: Family Behaviors, Unobserved Heterogeneities, and the Determinants and Impacts of Human Resources over the Life Cycle
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What You Don’t Know CAN Hurt You—Or at Least Mislead You:
Family Behaviors, Unobserved Heterogeneities, and the Determinants and Impacts of Human Resources over the Life Cycle

“What you don’t know can’t hurt you” is a common saying, variants of which date back at least to the sixteenth century.1 However, a common theme in my research on Latin America and the Caribbean, for which I am honored to receive the Latin American and Caribbean Economic Association’s (LACEA) 2008 Carlos Díaz-Alejandro Prize, is that what you don’t know can, indeed, hurt you—or at least mislead you in interpreting empirical research. In this Carlos Díaz-Alejandro Prize Lecture, I first briefly recap a number of milestones in my journey as an empirical microeconomist involved in Latin America and the Caribbean, then I present a simple framework for analyzing household investments in human resources to illustrate why what you don’t know can mislead you in the presence of unobserved heterogeneities, and finally I give an number of related empirical illustrations based on my research in Latin America and the Caribbean as well as elsewhere.

My involvement in analyzing Latin American and Caribbean economic issues has been a long journey, and it is still under way. Along the way, I have worked with many fellow travelers in many countries, institutions, and projects. Here I highlight a few of the larger projects before returning to the main theme of the paper.

From 1968 to 1970, with research continuing until 1976, I participated in a project coordinated and funded by the Chilean National Planning Office (ODEPLAN), Massachusetts Institute of Technology (MIT), and the Ford [End Page 1] Foundation, in which I was involved in empirical macroeconomic modeling with a focus on adjustments within a macroeconomic context.2 Near the end of this period, I also undertook the Chilean country study in the National Bureau of Economic Research (NBER) multi-country comparative project on “Foreign Trade Regimes and Economic Development,” headed by Jagdish Bhagwati and Anne O. Krueger.3 My colleagues in the ODEPLAN project, whom I first met over forty years ago in Chile, included Carlos Díaz-Alejandro, in whose honor the LACEA prize was established, and Edmar Bacha, the first recipient of this prize in 1998.

From 1975 to 1987, I spearheaded the Nicaragua Socioeconomic Survey of Women, an interdisciplinary survey including data on a subsample of adult sisters. The data support analyses that control for unobserved components of common childhood family background in estimating the impacts of human resources.4

From 1980 to the present, I have participated in World Bank projects on a range of topics on the microeconomics of human resources in Latin America, some of which are reviewed below. Research topics included Brazilian school quality, the Brazilian governmental social welfare function underlying the distribution of public resources for schooling, Brazilian cohort effects and geographical effects, the impact of a Bolivian early childhood development program, attrition in longitudinal surveys in developing countries including Bolivia, the impact of human capital investments in Latin America and elsewhere, and the impact of birth weight over the life cycle in developing countries including Latin America.5

From 1982 to the present, I have been involved in a series of Inter-American Development Bank (IDB) and IDB Research Networks projects on macroeconomic modeling, human resource investments, early life nutrition, pre-school child development, quality of life, intergenerational mobility, social protection, and distribution.6 [End Page 2]

From 1996 to the present, I have worked with a team evaluating Mexico’s PROGRESA (now called Oportunidades), a program of human resource investment and anti-poverty conditional cash transfers. The evaluation was initially coordinated by the International Food Policy Research Institute (IFPRI) and subsequently continued by the Instituto Nacional de Salud Pública (INSP). Our research emphasized schooling and early life nutrition.7

From 2000 to the present, I have been involved with the Universidad de Chile and the government of Chile in implementing the Social Protection Survey. This collaborative data collection served as the basis for studies on pension systems, schooling, early life education, and evaluation.8

From 2000 to the present...