The Palestinian Economy. Theoretical and Practical Challenges

Proceedings “The Palestinian Economy: Theoretical and Practical Challenges” 331
Although these are reduced form results and they do not indicate through which
mechanism(s) closures could give rise to an increase in child labour, they are nonetheless
interesting per se. They suggest that the conflict has a (probably unintended) negative
effect on the Palestinian economy which should be taken into account in the analysis of
the long run cost of the Israeli-Palestinian conflict.
5.2. Possible channels
There are many possible channels through which the conflict may cause an increase in
child labour. Previous empirical evidence suggests that not only the child and household
characteristics but also the features of the labour market may play a role in determining
the level and dynamics of child labour. It follows that, if the local labour market is an
important determinant of child labour, any factor that modifies the functioning of the
former impact on the latter too. This is especially true for weak and fragile developing
countries whose labour market is directly affected by a conflict. Our results suggest that
this is indeed the case of the Palestinian Territories.
In the spirit of Kuha and Goldthorpe (2009), we seek to quantify the importance of
different possible mediating channels through which closure may affect child labour and
school attendance using a two stage procedure. 13 While we are not able to empirically
identify the separate effect of each channel on child’s status, the idea is to compare their
relative contribution in explaining the effect of closure days on child’s status. At the same
time, this approach in any way implies that the impact of closure days on child’s status is
exhausted by the effects through the channels considered here.
We run a set of (first stage) regressions of labour market and household level
economic indicators on the number of closure days controlling for year and district fixed
effects. 14 The predicted value of each regression is then plugged into the bivariate model
for child labour and school attendance (second stage regression), controlling for the
13 In their study of inter-generational social mobility, they examine the indirect effect of parental social status
on adults social status through the channel of education. A similar approach is adopted in Rodriguez and
Sanchez (2009) to study the effect of conflict in Colombia on the accumulation of human capital.
14 As a robustness check, in all first stage regressions we also included the interaction between the distance
from the border and the number of closure days. In all cases, the level of significance of the number of
closure days does not change. So we choose to stay with the more conservative results keeping only the
number of closure days in the first stage.