Loan regulation and child labor in rural India
Abstract: We study the impact of loan regulation in rural India on child labor with an overlapping-generations model of formal and informal lending, human capital accumulation, adverse selection, and differentiated risk types. Specifically, we build a model economy that replicates the current outcome with a loan rate cap and no lender discrimination by risk using a survey of rural lenders. Households borrow primarily from informal moneylenders and use child labor. Removing the rate cap and allowing lender discrimination markedly increases capital use, eliminates child labor, and improves welfare of all household types.
File(s): File format is application/pdf http://research.stlouisfed.org/wp/2012/2012-027.pdf
Provider: Federal Reserve Bank of St. Louis
Part of Series: Working Papers
Publication Date: 2012