Child Labor: Theory of Foreign Trade and Investment Intervention

Katja Michalak and Nadeem Naqvi

MPRA Paper from University Library of Munich, Germany

Abstract: The principal result of this paper is that under endogenous international capital mobility inward FDI reduces the incidence of child labor if stimulated by a country’s trade policy of granting protection to the sector that employs child labor. Child labor persists, however, if there is exogenous inward FDI and it is small in magnitude; it is eradicated in equilibrium if this FDI is sufficiently large. If the supply of capital in the country is fixed, granting greater tariff protection or higher export subsidy to a sector that employs child labor reduces its incidence, and may eventually eliminate it. Since a country’s aggregate real income decreases as the import tariff increases, it may sometimes face the dilemma of having to choose between higher real GDP or fewer child workers as an entailment of its foreign trade policy. These results are obtained under standard assumptions about technology, and maximizing behavior on the part of both producers and families, with the latter maximizing a Kanger-Sen non-binary preference ranking relation subject to their budget constraints. (171 words)

Keywords: child labor; FDI; trade policy; International Labor Organization; World Trade Organization; India; United Sates of America (search for similar items in EconPapers)
JEL-codes: F16 O12 O15 (search for similar items in EconPapers)
Date: 2019-05-15
New Economics Papers: this item is included in nep-int
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