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Impact of Trade Openness and Foreign Direct Investment on Child Labor; Evidence from Sub-Saharan African Countries

Wani Nelson Waru

International Journal of Science and Business, 2020, vol. 4, issue 8, 127-145

Abstract: The purpose of this paper is to examine the impact of Trade Openness and Foreign Direct Investment on Child Labor; Evidence from Sub-Saharan Africa countries using a panel data from 1990 to 2017 for 32 countries. Using Generalized Methods of Moments (GMM) as the main estimating technique with robustness checks using two-stage least squares (2SLS) regression analysis to address the endogeneity that could cause the direction of the bias to be either positive or negative. This paper seeks to examine the underlying link between FDI, Trade Openness and child labor, which suggest essential implications for eradicating child labor’s policies for Sub-Saharan African Countries. This study found that trade openness is positively and significantly related to child labor. The possible explanation is that trade openness raises the output of the exportable sector and upsurges the demand for child labor as well as the child-wage. The openness of market amalgamation argues that globalization may increase the wages paid to increase the earnings opportunities of children in poor economies, thereby increasing child labor. As far as FDI is a concern, Foreign investors seem to be less interested in exploiting unskilled labor than is presumed by the conventional wisdom due to the fact that market size and market growth, political stability, and infrastructure are often as important, if not more important than low wages. The results fail to find that countries with low labor standards in general and a high incidence of child labor attract a greater inflow of Foreign Direct Investment. The study provides several implications for the policymaker on Trade openness and FDI on child labor and end by suggesting that rich countries should restrict the sale of goods from developing countries that lack or do not enforce child labor laws, effective policy against child labor is to promote the development of functioning credit markets in Sub-Saharan African countries and to facilitate access to these markets for poorer households

Keywords: Child labor; Trade Openness; Foreign Direct Investment; GMM (search for similar items in EconPapers)
Date: 2020
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Handle: RePEc:aif:journl:v:4:y:2020:i:8:p:127-145