Krishnakumar, Jaya (2); Nogales, Ricardo (1) (2017). 'Demystifying the use of simultaneous equation models for operationalising Amartya Sen´s Capability Approach' Paper presented at the annual conference of the HDCA, Cape Town 2017.


This paper aims to (re-)emphasise the suitability of simultaneous equation models to operationalise the capability approach and bring out its essential features through an adequate representation of all the informational sets considered in this approach namely resources, conversion factors, capabilities, achieved functionings and their value to a person, as well as the different relationships among them. These models allow for a complete description of the multidimensionality of human life, the interconnectedness among the various dimensions, and the influence of surrounding social, economic, political and institutional factors in shaping the capability sets of individuals. We highlight that not only do these models provide a suitable framework for taking a capability approach-based theory to the ground reality in order to apply and validate it in different contexts, but also they enable us to make comparisons of wellbeing freedoms across different groups of individuals and analyse the influence of various exogenous determinants and policy variables on them.


The paper includes clear and succinct presentations of two empirical applications for illustrating the wide range of practical uses of this methodology. We summarise these studies from the point of view of how the CA has been operationalised in both contexts by means of a SEM with latent variables. These studies also demonstrate the usefulness of integrating other theoretical approaches with the CA in the search of effective practical policy guidelines for the improvement of human well-being.


The first illustration consists of a CA-based practical framework for policy guidance against unfair social disparities, which is the subject of another paper by the same authors. This study develops an econometric model for assessing the social justice aspect of public policies that aim at improving individual wellbeing, adopting a multidimensional definition of the latter inspired from the CA. We use Bolivian nation-wide representative micro-level data for our empirical analysis. By simulating a reduction of 50% in social expenditures at the municipal level and re-assessing the effect of being indigenous, we find that the magnitude of the negative effect increases around 38% in the simulated scenario thus showing that these expenditures are indeed helping to reduce the unfair disadvantage of the indigenous people. Furthermore, our empirical model also allows us to calculate the (optimal) level of expenditure required to completely eliminate unfair disparities due to being indigenous, all other things being equal. Our computations show that social service expenditure should rise, on average, by around 303% per person each year!  Thus the current expenditure level is quite far from the optimal level.


The second illustration, also based on an independent paper by the same authors, consists of a CA-based practical framework for understanding work-related wellbeing. In this study, we focus on a dimension of human development that, in our view, remains understudied in the CA-related literature, namely work-related wellbeing, or work advantage. Once again, we use Bolivian data for empirical support, which comes from the World Bank’s Survey Towards Employability and Productivity (STEP) program. Our empirical results confirm that investments for skill acquisition such as years of schooling and timely school start have significant direct influences on both cognitive and non-cognitive skills and through them, on work advantage. For instance, we show that individuals with a relative advantage in cognitive skills have had at least 12.5 years of education (completed secondary education plus short pre-college courses). Similarly, advantaged individuals in terms of non-cognitive skills are concentrated among people who have at least completed primary education (8 years of schooling). As non-cognitive skills may be considered more malleable than cognitive skills through the life cycle, this calls for a special attention to be given to the organization of curricula at different levels of education so that more years of education effectively translate into better non-cognitive skills. This is particularly important for the Bolivian case, as public and private schools and universities in the country are constantly revising a competency-based teaching and learning process.

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