The Palestinian Economy. Theoretical and Practical Challenges

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Di Maio – Nandi
Confirming previous research, our results also suggest that child labour is affected
by changes in the opportunities provided by the local labour market (see for instance
Manacorda and Rosati 2007; Edmonds et al. 2009). Empirical evidence from developing
countries suggests the substitution effect to dominate the income effect (Wahba 2006;
Kruger 2007). On the contrary, our results show that in the case of West Bank the income
effect prevails and the worsening of the economic condition increases child labour. This
latter result indicates that indeed the effect of closure is not restricted to households
whose father is employed in Israel. On the contrary closures affect children’s time
allocation decision by modifying the functioning of the West Bank economy as a whole.
Interestingly this result is in line with the model presented in Epstein and Kahana (2008).
The model predicts that, in a Basu-Van setting, the emigration of fathers – inducing an
increase in the domestic local wage – is able to move the economy from an equilibriumwith
child labour to an equilibrium without it. Our results indicate that in West Bank the
reverse situation takes place: the return of fathers – caused by the closure of borders –
increases child labour in the economy. The result about the effect of closures on the
district market wage is in line with this interpretation.
Finally our results highlight that child labour and school attendance decisions are
interdependent but they may be affected by the conflict in different ways. For instance,
while school attendance appears to be only marginally influenced by the number of
closure days we cannot exclude that other military measures may have a large impact on
human capital accumulation in WB as well. We also speculate that an analysis of the
determinants of school attendance would probably require additional information on the
quality of education, the accessibility or the cost of education, etc. Further analysis and
data collection is needed on this important aspect.