Investing in the Next Generation: The Long-Run Impacts of a Liquidity Shock

Poor entrepreneurs must frequently choose between business investment and children’s education. To examine this trade-off, we exploit experimental variation in short-run microenterprise growth among a sample of Indian households and track schooling and business outcomes over eleven years. Treated households, who experience higher initial microenterprise growth, are on average one-third more likely to send children to college. However, educational investment and schooling gains are concentrated among literate-parent households, whose enterprises eventually stagnate. In contrast, illiterate-parent households experience long-run business gains but declines in children’s education. Our findings suggest that microenterprise growth has the potential to reduce relative intergenerational educational mobility. (JEL I21, I26, I32, J13, L25, L26, O12)