Child Labor: The Role of Income Variability and Access to Credit in a Cross-Section
25 Pages Posted: 20 Apr 2016
Date Written: January 2002
Abstract
In the absence of developed financial markets, households appear to resort to child labor to cope with income variability. This evidence suggests that policies aimed at increasing households' access to credit could be effective in reducing child labor. Even though access to credit is central to child labor theoretically, little work has been done to assess its importance empirically. Dehejia and Gatti examine the link between access to credit and child labor at a cross-country level.
The authors measure child labor as a country aggregate, and proxy credit constraints by the level of financial market development. These two variables display a strong negative (unconditional) relationship. The authors show that even after they control for a wide range of variables - including GDP per capita, urbanization, initial child labor, schooling, fertility, legal institutions, inequality, and openness - this relationship remains strong and statistically significant. Moreover, they find that, in the absence of developed financial markets, households resort to child labor to cope with income variability. This evidence suggests that policies aimed at increasing households' access to credit could be effective in reducing child labor.
This paper - a product of Macroeconomics and Growth, Development Research Group - is part of a larger effort in the group to study the determinants of child labor.
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