The Palestinian Economy. Theoretical and Practical Challenges

318
Di Maio – Nandi
his analysis does not include the number of closure days, the market wage and the
household income as explanatory variables, nor it is able to identify the channels through
which the conflict may affect children’s status.
3. Estimation strategy and econometric model
We study the effect of changes in the intensity of the conflict on child labour and school
attendance in West Bank (WB) exploiting the within year variation in the quarterly
number of closure days. Our estimation strategy is based on the fact that the number of
closure days our measure for the intensity of the conflict – is exogenous to the Palestinian
labour market conditions. The next section is devoted to provide evidence on this point.
Following Duryea and Arends-Kuenning (2003), we assume that the decisions to
attend school or to work cannot be considered independently. Accordingly, we use a
bivariate probit model to estimate the probabilities of child labour and school attendance.
*
*
Let cl
i
and sc
i
denote two latent variables underlying the work and schooling decisions,
respectively, for child i. We represent the decision making process as follows:
cl g u
(1)
i i1 i1
sc g u
(2)
i i2 i2
where u , u
BN0,0,1,1,
i1 i2
The index function for child i has the form:
il
and BN stands for the bivariate normal distribution.
g district year CD X l (3)
'
1 ij
with 1, 2
where
1
is the constant, district and year are fixed effects, respectively. CD is the
variable which captures the intensity of the conflict: it is the quarterly number of days the
borders between Israel and Palestinian Territories remained closed (closures). The