Trade Openness, Foreign Direct Investment and Child Labor

World Development, Vol. 33, No. 1, pp. 43-63, 2005

48 Pages Posted: 31 Dec 2003 Last revised: 24 Jun 2010

See all articles by Eric Neumayer

Eric Neumayer

London School of Economics and Political Science (LSE)

Indra De Soysa

Norwegian University of Science and Technology

Date Written: May 1, 2004

Abstract

The skeptics of globalization argue that increased trade openness and foreign direct investment induce developing countries to keep labor costs low, for example by letting children work. This article argues that there are good theoretical reasons why globalization might actually have the opposite effect. We test this with various measures of child labor and provide the first analysis of foreign investment in addition to trade. We present evidence that countries that are more open towards trade and/or have a higher stock of foreign direct investment also have a lower incidence of child labor. This holds for the labor force participation rate of 10 to 14 year old children, the secondary school non-attendance rate and a count measure of economic sectors with child labor incidence as the dependent variables. Globalization is associated with less, not more, child labor.

Keywords: Child labor, trade, FDI, globalization, MNCs, sanctions

Suggested Citation

Neumayer, Eric and De Soysa, Indra, Trade Openness, Foreign Direct Investment and Child Labor (May 1, 2004). World Development, Vol. 33, No. 1, pp. 43-63, 2005. Available at SSRN: https://ssrn.com/abstract=482649 or http://dx.doi.org/10.2139/ssrn.482649

Eric Neumayer (Contact Author)

London School of Economics and Political Science (LSE) ( email )

Houghton Street
London, WC2A 2AE
United Kingdom
+44 207 955 7598 (Phone)
+44 207 955 7412 (Fax)

HOME PAGE: http://personal.lse.ac.uk/neumayer

Indra De Soysa

Norwegian University of Science and Technology ( email )

Trondheim NO-7491
Norway

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