The effect of microenterprise lending on child schooling in Guatemala

The empirical conclusions from this research generally support findings from previous research that access to credit increases schooling investment in children. The major contribution of this research, however, is to show that the relationship between access to credit and schooling investment is not unequivocally positive. Although microenterprise credit programs may alleviate many of the harsh consequences of imperfect information-plagued credit markets, this research shows that investment in child schooling also depends on labor market factors. If the potential for moral hazard exists within household enterprises, families may still prefer to use children's labor rather than hired labor, despite the fact that the relaxation of credit constraints could allow hired labor to be substituted for child labor. The positive effect of credit on child schooling may be further mitigated by the physical capitalization of the household enterprise. Enterprise capitalization increases the return to child labor and thus the opportunity cost of schooling. As a consequence, the relief of credit constraints in a developing country setting like Guatemala does not appear to unambiguously increase investment in child schooling as previous research has suggested.