The Untold Story of Cohabitation: Marital Choice and Education Investment

BACKGROUND Cohabitation is a common practice in eastern Indonesia due to high costs of marriage. There are few studies in the literature that investigate the impact of cohabitation in developing country context. However, there is a limited study on the impact of cohabitation on child development and the mechanism of the impact. OBJECTIVE This study analyzes the effect of cohabitation on households’ human capital investment on education, which is an important determinant of children’s future outcomes. METHODS We use an instrumental variable approach—with the gender of the child before marriage as the instrument—to identify the causal effect of cohabitation on household educational investment and child cognitive skills using a unique dataset provided by the 2012 Indonesian Family Life Survey East. RESULTS We find that cohabitation led to a lower child’s cognitive score by 0.288 standard deviations. One of the main explanations for this result is that cohabited couple spent a lower share of spending for education. In particular, cohabiting couples allocated a lower share of spending for education by 4.4 percentage points in comparison to married couples. CONCLUSIONS Cohabitation has a negative impact on child cognitive scores and it can be explained by, among others, relatively lower education spending. CONTRIBUTIONS Our study extends the literature that analyzes the effect of marital choice on children's outcome by explaining mechanisms on how marital choice affect child outcome.