Child labor and schooling responses to anticipated income in South Africa

Forward looking, unconstrained households make child labor and schooling decisions considering their permanent income and weighing the relative returns to child time in various potential activities. The timing of anticipated changes in income should have no effect on child labor and schooling in a setting where households can borrow against permanent income. However, this study documents large increases in schooling attendance and declines in total hours worked when black South African families become eligible for fully anticipatable social pension income. As an explanation, the data are most consistent with liquidity constraints for black elder males forcing rural families into less schooling for boys than they would choose absent the constraint, perhaps because of schooling costs.     

Child labor and schooling response to changes in coca production in rural Peru

Coca eradication and interdiction are the most common policies aimed at reducing the production and distribution of cocaine in the Andes, but little is know about their impact on households. This paper uses the shift in the production of coca leaves from Peru to Colombia in 1995 to analyze the indirect effects of the anti-coca policy on children's allocation of time. After different sensitivity checks, the results indicate that a decrease in coca production is associated with increases in work and hours children living in coca-growing states devote to work within and outside the household, with no effects on schooling outcomes. These findings suggest a previously undocumented indirect effect of drug policies on household behavior.     

Conflict displacement and labor market outcomes in post-war Bosnia and Herzegovina

The war in Bosnia and Herzegovina of the early nineties displaced 1.3 million people. This study uses longitudinal data to document the effects of this displacement on labor market outcomes. To account for endogeneity in displacement, I exploit the fact that the level of violence affected the decision to leave and that pre-war economic performance is orthogonal to local violence levels. I find that displaced Bosnians are less likely to be working relative to the people who stayed. Displaced men experience higher unemployment levels, and displaced women are more likely to drop out of the labor force.     

Child fostering in Africa: When labor and schooling motives may coexist

The paper proposes a theoretical framework for understanding purposive child fostering in Africa, whereby a non-orphaned child is sent to live temporarily with relatives. In the model, adults decide whether to foster in or out a child in conjunction with other household choices, e.g. own time allocation between market and non-market activities, children's amount of work, and schooling. By allowing for positive externalities from fostering, and thus asymmetric motives for fostering in (labor) and out (human capital), the proposed framework predicts that school-age children are sent to better-off households and that some families may foster in and out simultaneously. The model identifies the conditions under which all actors involved, children included, may benefit from fostering arrangements, but also points to situations where fostering may become an opportunity to marginalize a subset of children. The paper aims to provide a sound theoretical foundation that sheds light on why there exists mixed empirical evidence on the effects of fostering on children's well being, and cautions against demonizing non-parent residence as unequivocally detrimental to children.     

Child labor and the minimum wage: Evidence from India

This study examines how changes in the minimum wage affect child labor in India. The analysis uses repeated cross sections of India's NSSO employment data from 1983 to 2008 merged with data on state-level minimum wage rates. Theoretically, the impact of the minimum wage on child work could go either way, so empirical evidence from a country with high rates of child labor and a myriad of minimum wage laws across states and industries helps to lessen the ambiguity. Results indicate that regardless of gender, in urban areas, a higher minimum wage reduces child labor in household work. In rural areas a similar result applies for girls while household labor does rise for boys. The minimum wage has virtually no impact on child work outside of the home across urban and rural areas.     

AIDS mortality and its effect on the labor market: Evidence from South Africa

This paper investigates how HIV/AIDS has impacted the labor market in South Africa, focusing on its effect on wages and employment. This is done by matching individual level data with group specific cumulative AIDS mortality rates. Exploiting the panel nature of the data, I remove individuals whose productivity is most likely impacted by HIV/AIDS, and find evidence that cumulative AIDS mortality has led to reductions in wages of between 3 and 6% for the African population group (Black South Africans). Furthermore, I also find evidence that the epidemic has lowered employment in South Africa. This result is concentrated among those with the lowest levels of education and employment. Although not large in magnitude, these effects are widespread across a significant portion of the population, contributing to a substantial loss of income throughout the South African economy.     

Social norms and female labor force participation in urban China

This study investigates the impact of social norms on the labor supply decision of married women in urban China. Our estimation results indicate that men raised by non-working mothers are more likely to support traditional gender roles, are more averse to having working wives, and tend to be less productive or less willing to engage in housework than other men. Consequently, the labor force participation rate of married women with non-working mothers-in-law is 5–18 percentage points lower than that of married women with working mothers-in-law in urban China.     

Entrepreneurial talent, occupational choice, and trickle up policies

We study market inefficiencies and policy remedies when agents choose their occupations, and entrepreneurial talent is subject to private information. Untalented entrepreneurs depress the returns to entrepreneurship because of adverse selection. The severity of this problem depends on the outside option of entrepreneurs, which is working for wages. This links credit, product and labor markets. A rise in wages reduces the adverse selection problem. These multimarket interactions amplify productivity shocks and may generate multiple equilibria. If it is impossible to screen entrepreneurs then all agents unanimously support a tax on entrepreneurs that drives out the less talented ones. However, if screening is possible, e.g., if wealthy entrepreneurs can provide collateral for their loans, then wealthy entrepreneurs do not support surplus enhancing taxes.     

Financial markets, the pattern of industrial specialization and comparative advantage: Evidence from OECD countries

Due to underlying technological and organizational differences, industries differ in their need for external finance. Since services provided by the financial sector are largely immobile across countries, the pattern of industrial specialization should be influenced by the level of financial development. Among OECD countries we find a strong causal effect of the financial sector on industrial specialization. Further, the financial sector is a source of comparative advantage in a way consistent with the Hecksher-Ohlin-Vanek model. Results are also presented on which aspects of financial systems are important for specialization and comparative advantage.     

Finance–Growth Nexus and the P‐bias: Evidence from OECD Countries

Recent studies provide new empirical evidence confirming that financial development is linked to economic growth in OECD countries. Using new dynamic panel regression techniques, these appraisals indicate that within the group of high‐income countries stock market size as a measure of financial advancement contributes significantly to overall economic activity. Applying the same advanced techniques, this paper questions this conclusion by showing that the findings of these studies seem to be not only not robust with respect to adding new observations but also likely to be plagued by a severe price bias which belittles the information content of the used financial indicator (stock market capitalization). We provide evidence that anticipative price effects (i.e. expectations of future growth, reflected in current stock prices) may be driving the statistical relationship between stock market activities and economic growth in high‐income countries to a much larger extent than recent analyses of the finance– growth link in OECD countries suggest .     

Political origins of financial structure

There is growing policy interest in the role of financial structure in promoting development. However, very little is known about how different financial structures emerge and evolve. In this paper we empirically assess the political origins of financial structure. Using difference–in difference estimation and annual data, we study the effects of democratization on financial structure in a sample of 96 countries covering the period 1970–2005. Democratization here corresponds to the event of becoming a democracy. We find that democratization leads to a more market-based financial system. Democratic change could also be incremental rather than a one off. To identify the effect of incremental democratic change on financial structure we estimate a separate model and find that democracy matters. We also find that countries with substantial democratic capital are more likely to have a market-based financial structure. Our main results are robust to a variety of controls, Arellano–Bond GMM estimation, alternative measures of democracy and financial structure, and across different samples.     

The human capital consequences of civil war: Evidence from Guatemala

We combine data from the 2002 National Population Census and the distribution of the number of human rights violations and victims across 22 departments to examine how Guatemala's 36-year-long civil war affected human capital accumulation. The year of birth and the department of birth jointly determine an individual's exposure during school age to three different periods of the civil war, namely the initial period (1960-1978), the worst period (1979-1984), and the final period (1985-1996). We find a strong negative impact of the civil war on the education of the two most disadvantaged groups, namely rural Mayan males and females. Among rural Mayan males, those who were school age during the three periods of the civil war in departments where more human rights violations were committed completed 0.27, 0.71, and 1.09 years less of schooling respectively whereas rural Mayan females exposed to the three periods of the war completed 0.12, 0.47, and 1.17 years less of schooling respectively. Given an average of 4.66 and 3.83 years of schooling for males and females, these represent declines of 6, 15, and 23% for males and 3, 12, and 30% for females. Our results are robust to the inclusion of indicators for department of residence, year of birth, and controls for different trends in education and human development in war-affected and peaceful departments of Guatemala and suggest that the country's civil war may have deepened gender, regional, sectoral, and ethnic disparities in schooling.     

Fertility,household structure,and parental labor supply: Evidence from China

This study examines the effects of fertility on household structure and parental labor supply in China. To solve the endogeneity problem, we use a unique survey on households with twin children and a comparison group of non-twin households. The ordinary least squares estimates show a negative correlation between fertility and parental labor supply in rural China. Using twinning as a natural experiment, we do not find evidence on the negative effects of fertility on parental labor supply. By contrast, we find that the twinning-induced increase in fertility significantly enhances the coresidence of grandparents in rural China. We suggest that the negative effects of fertility on parental labor supply are mitigated by the childcare provided by grandparents in rural China. We also find that fertility does not induce coresidence of grandparents in urban China. Our results have important implications for population and public childcare policies.     

Aggregate labor market fluctuations under news shocks

The standard RBC model fails to replicate the relationship between aggregate hours worked and average productivity. We propose a DSGE model that incorporates habit formation preferences, capital adjustment costs, and news shocks to solve the puzzle implied in the standard RBC model with only technological shocks. The aggregate labor supply curve is shifted due to the wealth effect caused by the variation of consumption under a news shock. Moreover, capital adjustment costs help amplify the variation of consumption, and thus the movement of the aggregate labor supply curve under the news shock. Also, the aggregate demand curve will be shifted, as it operates in the standard RBC model after the realization of the news shock. As a result of the joint movement of the aggregate labor supply curve and aggregate labor demand curve under the news shock, the model achieves a relationship quite close to the empirically observed relationship.     

Vertical integration and investor protection in developing countries

The industrial organization of developing countries is characterized by the pervasive use of subcontracting arrangements among small, financially constrained firms. This paper asks whether vertical integration relaxes those financial constraints. It shows that vertical integration trades off the benefits of joint liability against the costs of rendering the supply chain more opaque to external investors. In contrast to the commonly held view that pervasive input and capital market imperfections are conducive to vertical integration, the model predicts that the motives for vertical integration are not necessarily higher in developing countries. In particular, vertical integration is more likely to arise at intermediate levels of investor protection and better contract enforcement with suppliers reduces vertical integration only if financial markets are sufficiently developed. Evidence supporting both predictions is discussed.     

A fundamental asymmetry of asymmetric shocks

A simple N-country specific-factor-type model with imperfectly mobile labour is developed. It is shown that the effects of country-specific productivity shocks hitting a small country have fundamentally asymmetric effects: A positive shock will be accommodated by a moderate wage increase and sizeable in-migration, whereas a negative shock will be accommodated by a significant decrease in wages and moderate out-migration. It is argued that the results of the model are consistent with the recent Irish experience. The welfare effects of small economic fluctuations are also discussed.     

Financial liberalization,private investment and portfolio choice: Financialization of real sectors in emerging markets

Using firm level panel data, we analyze the impacts of rates of return gap between financial and fixed investments under uncertainty on real investment performance in three emerging markets, Argentina, Mexico and Turkey. Employing a portfolio choice model to explain the low fixed investment rates in developing countries during the 1990s, we suggest that rather than investing in irreversible long-term fixed investments, firms may choose to invest in reversible short-term financial investments depending on respective rates of returns and the overall uncertainty in the economy. The empirical results show that increasing rates of return gap and uncertainty have an economically and statistically significant fixed investment reducing effect while the opposite is true with respect to financial investments.     

Hidden consequences of a first-born boy for mothers

Women whose first child is a boy work less than women with first-born girls. After a first-born boy the probability that women have more children increases. Higher fertility is a possible explanation for the lower labor supply of mothers.     

Does financial liberalization improve the allocation of investment?: Micro-evidence from developing countries

Using firm level panel data from 12 developing countries we explore whether financial liberalization improves the efficiency with which investment funds are allocated. A summary index of the efficiency of investment allocation that measures whether investment funds are going to firms with a higher marginal return to capital is developed. We examine the relationship between this and various measures of financial liberalization and find that liberalization increases the efficiency with which investment funds are allocated. This holds after various robustness checks and is consistent with firm level evidence of a stronger association between investment and fundamentals after financial liberalization.     

Child gender and parental borrowing: Evidence from India

Discrimination against girls is well-documented, especially in Asia. We show that women try to level the playing field for their daughters by taking on debt. But wealth asymmetry between mothers and fathers perpetuates gender inequality across generations.