Microcredit and Child Labour Following Natural Disasters: Evidence from Indonesia

This paper examines the impact of an earthquake in Indonesia on children’s school and work activities and how that relationship differs by access to credit. We find that the earthquake decreases educational attainment while increasing child labour and the effect is stronger for households with access to credit. Following the 2006 Yogyakarta earthquake, years of schooling for earthquake-affected children aged 7–14 decreased by 0.5 years, but the effect was stronger for those living close to a microfinance institution. Heterogeneity in treatment effects suggests that the opportunity cost of schooling increases as households with micro-loans open up businesses. Our finding indicates the complementary effect between credit and child labour and suggests the need for policies to increase educational investment when providing micro-loans to help households affected by shocks.