Centre for Applied

2008 Primary school enrolment rates are continuously low in many developing countries. The main explanation in the economic literature on schooling is focused on credit constraints and child labour, implying that the indirect cost of schooling in terms of foregone earnings is too high. This paper investigates the e¤ects of future income uncertainty on sibling dependence in the schooling decisions of rural households in developing countries. Schooling tends to direct skills towards future urban employment, whereas traditional rural education or on-farm learning-by-doing tends to direct skills towards future agricultural employment. Given this dichtomy, the question is then: Does future income uncertainty inuence the joint educational choice made by parents on behalf of their children and is it possible to test this on simple cross-sectional data? I extend a simple human capital portfolio model to a three period setting. This allows me to explore the natural sequentiality in the schooling decision of older and younger siblings. The model can generate testable empirical implications, which can be taken to any standard cross-sectional data set. I \u85nd empirica