An Explanation of the International Variation in the Prevalence of Child Labour

ABSTRACT

It is hypothesized that the institutional acceptability of child labor will be more prevalent when the other members of a society gain from its use. Therefore, the cross-country variation in the prevalence of child labor depends on the degree to which child labor affects the welfare of the remaining members of a society. It is demonstrated theoretically that the non-child-labor factors gain from child labor when the economy is closed. As an economy becomes more open to international trade, those gains diminish and even turn negative as the size of the economy increases. Child labor will not exist in capital abundant countries since, in them, child labor makes the non-child-labor factors worse off. It is shown empirically that the cross-country prevalence of child labor falls with increases in a nation's per capita income, its openness to trade, and its economic size. It is argued that trade sanctions, as a remedy for child labor, may be counter-productive since an open economy reduces the benefits of child labor to the other members of a society, and thereby reduces the society's incentive to allow child labor. The model also demonstrates that the economic changes brought on by democracy undermine the practice of child labor.