Estimating Basic Capabilities: A Structural Equation Model Applied to Bolivia

Summary This paper proposes a suitable theoretical framework for operationalizing the capability approach using the latent variable methodology. A structural equation model is specified to account for the unobservable and multidimensional aspects characterizing the concept of human development and to capture the mutual influence among different capabilities. The model is applied to Bolivian data for studying two "basic" capability domains relating to children: knowledge and living conditions. Individual capability indices are constructed from the estimation results and their empirical distributions analyzed. Our results show a strong interdependence between the above capabilities and confirm the role of exogenous factors in their determination.