The Determinants and Consequences of Friendship Composition

This paper examines the demographic pattern of friendship links among youth and the impact of those patterns on own educational outcomes using the friendship network data in the Add Health. We develop and estimate a reduced form matching model to predict friendship link formation and identify the parameters based on across-cohort, within school variation in the "supply" of potential friends. Our model provides novel evidence on the impact of small changes in peer demographic composition on the pattern of friendship links. The evidence suggests, for example, that increases in the share of African-American or Hispanic students leads to reductions in the incidence of cross race friendships. We then use the predicted friendship links from the model in an instrumental variable analysis of the effects of friends' socioeconomic status, as measured by parental education, on own grade point average outcomes. Although the conditional correlation between friendship composition and grade point average suggests large associations between friends' characteristics and own grades, this effect is robust only for females in the instrumental variable analysis. We then present evidence that the GPA effects are driven by science and English grades and a mechanism is likely through non-cognitive factors