Parental income, child labour, and human capital accumulation: evidence from trade liberalisation in India

Abstract

ABSTRACTThis article examines whether parental income affects decisions on children’s human capital investment and labour market participation. India’s sudden and unanticipated trade liberalisation was a national policy that created an exogenous variation in industry-specific tariff rates over time. The policy consequently led to variation in workers’ earnings according to their industrial affiliations. The disparity in earnings across industries provides a good setting for identifying the causal effect of parents’ income on child’s labour and schooling, using an instrumental variables approach. The study finds a positive effect of parents’ income on children’s schooling but a negative effect on children’s work. The magnitude of effect, however, is higher for girls compared to boys.