From loans to labour: Access to credit, entrepreneurship, and child labour

Southeast Asia

Thailand

Labour Market

Microcredit

Lakdawala, Leah K.

2018

Lakdawala, Leah. (2018). From Loans to Labor: Access to Credit, Entrepreneurship, and Child Labor. SSRN Electronic Journal. 10.2139/ssrn.3211376.
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Secondary Data: Townsend Thai Project. Available at: http://townsend-thai.mit.edu/.

2018

Million Baht Program

1999-2005 (range of dataset)

The objective of the paper is to understand household business decisions in response to increased credit access in an environment with multiple market failures. Child labour is one of the outcomes.

Village committees were elected democratically to review applications and allocate funds. No further details were provided.

The program was one of the largest government initiatives aimed to expand household access to credit in the world, totaling about US$1.8 billion in initial funds. The program involved a lump-sum transfer from the central government to each village in Thailand - regardless of population - leading to larger per-capita increases in credit availability in villages that were smaller at the time the funds were received.

• Child labour (whether the child performs any work, before and after the program)
• Child labour is segmented into household chores and agricultural and non-agricultural activities.

Instrumental Variables

Study design: Empirically identifying the impact of increased credit access is often difficult, as the decision to take out a loan is usually correlated with unobserved characteristics of households that may also influence the outcomes of interest. For example, one might worry that underlying differences between borrowing and non-borrowing households may confound the effect of credit on child labor and entrepreneurial decisions. To tackle this challenge, the author implements an instrumental variables strategy that exploits the exogenous timing and institutional features of the Million Baht Program, a national credit expansion in Thailand.

The IV approach is based on two sources of variation in loan access introduced by the program. First, the credit expansion was rolled out rapidly as a surprise policy initiative. Second, the order in which villages received funds was random and thus exogenous to individual business investment and labor decisions. Another support for the empirical strategy is that the dataset used in the paper is a monthly panel collected at the household and child level over seven years, which allows for control of time-invariant unobserved heterogeneity across households and children.
Sample: a monthly panel of 426 households (612 children, ages 10-14) in 16 villages in the Northeast and Central regions of Thailand, from 1999-to 2005. The villages are spread across four districts of Thailand, which vary in terms of environmental factors and main economic activities. However, villages within a district are relatively similar.
Survey Instrument: not provided in the text.

Child labor in non-agricultural businesses increases in households in the middle of the wealth distribution. For a 1000 baht increase in borrowing, children are 3 percentage points more likely to work and work an additional 2.4 hours per month. At the average loan size, this translates to nearly 8 additional hours of work per week. The effects of child labor are persistent and sizeable even 12 months after households borrow.

Child Labour

Households

National

Expanded access to credit increases the use of child labour in Thailand. In general, the results suggest that through the avenue of encouraging entrepreneurial activity, expanding credit access may have unintended consequences for the supply of child labour.

Expanded access to credit raises entry into entrepreneurship for households in specific wealth groups.

N. A.