The Palestinian Economy. Theoretical and Practical Challenges

Proceedings “The Palestinian Economy: Theoretical and Practical Challenges” 315
children’s status. First, closures are expected to affect children belonging to households
whose father is employed in Israel: the closure of borders causes a sudden and
unanticipated drop in the household earnings. According to the luxury axiom (Basu and
Van, 1998) the reduction in the household income should increase child labour and
reduce school attendance. But closures are also expected to affect children’s status
through the modification of the local labour market conditions. Repeated incidence of
closure encourages returning workers to look for local jobs reducing local (and regional)
market wage. From a theoretical point of view, a change in latter is predicted to have two
opposite effects on child labour (and school attendance): the income and the substitution
effect. It is an empirical question which of these effects prevails. The conflict situation
thus implies that households – either directly or indirectly affected by the mobility
restrictions – may decide to have their children working and leaving school. Obviously
this would be more likely the less the household is able to cope with the worsening of the
economic conditions or to smooth consumption during temporary shocks.
Our results show that the intensity of the conflict – measured by the number of
closure days – increases the probability of child labour and marginally reduces school
attendance. These results are robust to the inclusion of a number of controls and also to
alternative econometric specifications. The magnitude of the effect is not negligible: a 10
days increase in the quarterly number of closure days increases the probability of child
labour by 11%. We also provide some evidence on the possible channels through which
the conflict affects child labour and school attendance. Our estimates indicate that an
increase in the number of closure days decreases local market wages, household income
and the probability of father being employed in Israel while it increases the number of
unemployed in the household. While all of them are possible channels through which the
conflict increases child labour and decreases school attendance, our results suggest that
the worsening of the local labour market condition is the most relevant one.
Two are the main contributions of our paper to literature. To the best of our
knowledge, this is the first paper that describes the determinants of child labour and
school attendance in West Bank. In doing so, we use a unique dataset obtained by
merging information from the Palestinian Labour Force Survey and separate data on 10-
14 years old children, both provided by the Palestinian Central Bureau of Statistics
(PCBS). As far as we know, it is also the first paper to study the effect that a conflict may
have – through its impact on the local economic conditions – on child labour. Our results
indeed suggest the existence of additional (probably unintended) social costs related to