Returns of parental education on children’s development by cultural inheritance and ethnic background

Abstract Parents’ education and the time they spend with their children are crucial for child development and human capital formation. We examine the returns of parental education on children’s cognitive devel- opment and academic performance, and how these effects vary by ethnicity. Using longitudinal data, random e↵ects models and Augmented Value Added models, we identify persistent test score gaps by ethnicity and by parental education which feed into later education and labor market outcomes. The gaps remain after controlling for socio-demographic characteristics and ability. Asian children outperform due to larger time investments, selection into better schools and parenting styles. Indigenous children tend to underperform due to a complex interplay of lower financial resources, lower time investments and parenting styles. On average, parental education facilitates the intergenerational transmission of human capital across ethnic groups in similar ways. However, quintile regressions identify diminished returns to parental education for Indigenous children at the upper end of the test score distribution. Our results have policy implications with respect to structural barriers and equity in the education system. JEL classifications: I24, I26, J15, J18