IZA DP No. 952: The Neighbourhood Is Not What It Used to Be
published in: Economic Journal, 2006, 116 (508), 200-222
Using a variance decomposition framework which provides bounds on the effect of families and neighbourhoods, we find important effects of family characteristics and residential location on educational attainment and adult earnings in Norway. Neighbourhoods are less important than families, as the correlations among siblings are significantly higher than among children growing up in the same local community. The impact of neighbourhoods is reduced by half from 1960 to 1970 and we link this result to several policy changes in the 1960s aimed at increasing equality of opportunity in Norway. Neighbour correlations in Norway are found to be significantly lower than in the United States.