Does governmental microcrediting benefit child labour in the poorest regions? New evidence from a transitional economy

Abstract

This paper contributes to the literature by examining, for the first time, the influence of credit access on child labour in the poorest regions of Vietnam. Two crucial empirical problems in the linkage between microfinancing and children’s labour are considered here – the sample selection bias and the endogeneity of microcrediting. Using a combination of the instrumental variable method and the Heckman approach to overcome these problems, the finding is that access to credit decreases the child labour rate. However, when both parametric and nonparametric methods are used, our results show that access to credit only decreases the probability of child labour for households with income per capita greater than 812 thousand VND (approximately 40 USD as of the 2012 rate). These findings imply that policies for relaxation of credit constraints for households may not be effective unless accompanied by the strategies to help households overcome the minimum threshold of income.