Loan Regulation and Child Labor in Rural India

25 Pages Posted: 11 Nov 2012

See all articles by Basab Dasgupta

Basab Dasgupta

World Bank

Christian Zimmermann

Federal Reserve Bank of Saint Louis; IZA Institute of Labor Economics

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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.

Keywords: child labor, India, informal lending, lending discrimination, interest rate caps

JEL Classification: O16, O17, E26

Suggested Citation

Dasgupta, Basab and Zimmermann, Christian, Loan Regulation and Child Labor in Rural India. IZA Discussion Paper No. 6979. Available at SSRN: https://ssrn.com/abstract=2173669

Basab Dasgupta (Contact Author)

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
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Christian Zimmermann

Federal Reserve Bank of Saint Louis ( email )

411 Locust St
Saint Louis, MO 63011
United States

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

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