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Revisiting the Relationship between Financial Development and Child Labor in Developing Countries: Do Inequality and Institutions Matter?

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  • Aïssata COULIBALY

Abstract

This paper analyzes the relationship between financial development and child labor for a panel of developing countries over the period 1960 to 2004. We find that financial development measured by the ratio of private credit to GDP tends to increase child labor and this result is driven by countries with high level of inequality, above to the mean of the Gini coefficient. This could reflect that with access to credit, households tend to invest in their own farm or family business, raising the opportunity cost of schooling and inducing more working children. These findings are robust to the use of different estimation techniques like instrumental variables strategy and generalized method of moments. But this positive effect is likely to be non nonlinear, especially financial development and education spending are effective in reducing child labor only in countries with better control of corruption. This suggests that better institutions by improving the quality of education services and its return tend to alter the positive impact of financial development which occurs via the high opportunity cost of education.

Suggested Citation

  • Aïssata COULIBALY, 2016. "Revisiting the Relationship between Financial Development and Child Labor in Developing Countries: Do Inequality and Institutions Matter?," Working Papers 201619, CERDI.
  • Handle: RePEc:cdi:wpaper:1831
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    More about this item

    Keywords

    Child Labor; Financial Development; Inequality; SWIID.;
    All these keywords.

    JEL classification:

    • J88 - Labor and Demographic Economics - - Labor Standards - - - Public Policy
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration

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