Trade, Foreign Direct Investment and Child Labour

Abstract

The effect of trade openness and FDI on the incidence of child labour is ambiguous because the substitution effect and income effect are considered to work in the opposite direction. This study uses a panel of 120 developing countries and gross enrolment rates of primary and secondary school as the proxy to measure the extent of child labour. The empirical results show that trade openness is statistically positively related to this proxy for child labour, while the effect of FDI on child labour is negative. The study also suggests that the effects of household income on the child labour are varied depending on the age groups and the levels of household income.