Maternal Stress and Initial Endowments: Evidence from a Financial Crisis

In this paper, I estimate the causal effect of exposure to the stress associated with the collapse of the Icelandic economy during the fall of 2008 using data from the National Birth Register. Iceland experienced the deepest and most rapid financial crisis recorded in peacetime history when its three major banks all collapsed during the same week, triggering a systemic crisis, the first in any advanced economy. I use this sudden deterioration in economic conditions to capture the causal effect that financial stress had on the birth outcomes of the cohort in utero during the collapse. I also estimate how birth outcomes change with the business cycle in general, using data covering all births in the country over a 30-year period. My analysis shows that birth outcomes are affected by both sudden and smooth declines in economic conditions.