Trade Liberalization, Capital Inflow and Incidence of Child Labour in a Developing Economy

Abstract

The present paper has made an attempt to analyze the effects of different trade and investment liberalization policies on the incidence of child labour in a developing economy using a three-sector general equilibrium framework with a non-traded final commodity produced by child labour. The interesting result that emerges from the analysis of the paper is that various liberalization policies may have different effects on the supply of child labour. For example, a reduction in import tariff and/or an increase in the price of the export commodity are likely to put downward pressures on the child labour incidence while an inflow of foreign capital may accentuate the problem. The outcomes of different policies, of course, depend crucially on the factor endowments and employment pattern of the economy. In an economy with a substantially large informal sector and scarcity of capital, the growth with foreign capital is likely to produce counterproductive effect on the child labour incidence.

Keywords: Child labour, general equilibrium, foreign capital, trade liberalization, informal sector

JEL Classification: F10, J10, J13, I28