Does Financial Assistance Reduce the Prevalence of Child Labor? Evidence from Ethiopia

Abstract

Despite being one of the fastest growing economies in the Sub-Saharan African region, Ethiopia’s percentage of child labor remains high. Persistent poverty is considered as the most prominent factor causing the problem of child labor. In this paper, I examine whether financial assistance can help reduce the prevalence of child labor, using data from the Ethiopia Socioeconomic Survey (ESS) in 2013 and 2015. Theoretically, the incidence of child labor will decrease if the child’s household has more disposable income. This potential reduction is based on the assumption that the allocation of a child's time to school and labor is largely decided by parents, and parents have no incentive to send their children to work unless they have no other choices. The empirical results from the Ordinary Least Squares regression (OLS) regression analysis suggest that there is no relationship between financial assistance and child labor. However, a statistically significant difference was found in the likelihood of child labor between urban and rural areas. The limitations in this study are mainly attributed to the omitted variable bias that is caused by lack of data on agricultural activities.