Abstract

Despite the widespread economic shocks faced by children in low- and middle-income countries, the role of child agency in shaping resilience remains poorly understood. Using longitudinal data from Ethiopia, we document two facts about skill development. First, parental wealth is only weakly correlated with noncognitive skills. Second, adverse weather shocks slightly reduce cognitive test scores but increase noncognitive skills, including generalized self-efficacy, self-esteem, and internal locus of control. The positive effect of adverse shocks on noncognitive skills replicates in a pooled analysis of four low- and middle-income countries. We rationalize these surprising findings within a model of cognitive and noncognitive skill development, where child agency serves a key role. In this model, when a child chooses to exert effort during a particular period, they not only increase their immediate consumption, but it also enhances their noncognitive skills through “learning by doing.” Incorporation of child agency in human capital development result in model predictions that are consistent with the empirical results, and highlights the policy relevance of improving child agency.