The Impact of FDI on Child Labor: Insights from an Empirical Analysis of Sectoral FDI Data and Case Studies
Asian Institute of Management Working Paper No. 13-006
36 Pages Posted: 12 Jul 2013
Date Written: January 2013
Not all FDI are alike as far as their impact on various dimensions of human development is concerned. This paper focuses, in particular, on child labor and it undertakes a cross-country empirical analysis of this issue, using data on 100 countries spanning the period 1990-2009. Unlike earlier studies that focus mostly on total FDI, we also utilized data on disaggregated FDI, covering main economic sectors of interest such as agriculture, mining, manufacturing, services, and finance. The empirical results suggest that different economic sectors generate varied effects on child labor. For instance, FDI in agriculture in Europe and Central Asia tends to exacerbate child labor, whereas FDI in manufacturing in South and East Asia and FDI in mining in Latin America appears negatively linked to child labor. Furthermore, signing onto the UN Convention on the Rights of the Child had a positive association with child labor, which runs counter to the intended effect! One possible explanation is that stronger anti-child labor laws could lead to multiple equilibria in labor markets, including the possibility of increasing child labor in certain sectors. Selected case studies help clarify the possible reasons behind this varied FDI impact on child labor, emphasizing among other factors supply chain management and the critical importance of policy implementation and coordination with the private sector.
Keywords: FDI, child labor, income and substitution effect, UN Convention on the Rights of the Child
JEL Classification: E24, F15, O15
Suggested Citation: Suggested Citation