Household vulnerability and child labor: the effect of shocks, credit rationing and insurance

The theoretical literature has pointed at the importance of access to credit market in determining the household decisions concerning children's activities and the reaction of households to adverse shocks. In this paper we address these issues making use of a unique data set for Guatemala that contains information on credit rationing and shocks. We address the potential endogeneity of the variable of interest using a methodology based on propensity scores and we use sensitivity analysis to assess the robustness of the estimates with respect to unobservables. The results show the importance of access to credit markets and of shocks in determining children's labor supply.