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Trade and Child Labor: A General Equilibrium Analysis

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  • Bandyopadhyay, Subhayu

    ()
    (Federal Reserve Bank of St. Louis)

  • Bandyopadhyay, Sudeshna C.

    ()
    (West Virginia University)

Abstract

This paper augments the existing literature on trade and child labor by exploring the effects of terms of trade changes in the context of a three good general equilibrium model, where one of the goods is a non-traded good. We find that under quasi-linear preferences the effect of the terms of trade on child labor depends critically on the pattern of substitutability (or complementarity) in the excess demand functions between the export good and the non-traded good. We extend the analysis to the case of homothetic preferences and find that the basic result is somewhat modified in a context where the marginal utility of income is affected by the terms of trade. We also extend the analysis to the case where factors move freely between the three goods as in a Heckscher-Ohlin type framework. Finally, we show that a balanced budget policy of taxing the education of skilled families and subsidizing the education of unskilled families must reduce child labor without any impact on aggregate welfare.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 1514.

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Length: 30 pages
Date of creation: Mar 2005
Date of revision:
Publication status: published in: Emerging Markets Finance and Trade, 2009, 45(1), 5-18
Handle: RePEc:iza:izadps:dp1514

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Keywords: child labor; non-traded goods; substitutability or complementarity; terms of trade;

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  1. Eric Edmonds & Nina Pavcnik, 2004. "International Trade and Child Labor: Cross-Country Evidence," NBER Working Papers 10317, National Bureau of Economic Research, Inc.
  2. Jean-Marie Baland & James A. Robinson, 2000. "Is Child Labor Inefficient?," Journal of Political Economy, University of Chicago Press, vol. 108(4), pages 663-679, August.
  3. Jafarey, Saqib & Lahiri, Sajal, 2002. "Will trade sanctions reduce child labour?: The role of credit markets," Journal of Development Economics, Elsevier, vol. 68(1), pages 137-156, June.
  4. Edmonds, Eric V. & Pavcnik, Nina, 2005. "The effect of trade liberalization on child labor," Journal of International Economics, Elsevier, vol. 65(2), pages 401-419, March.
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