The ‘ amelioration ’ of child labor, ‘a modest proposal’

More than 317 million children between the age of 5 and 17 are working in the world. Child labor is a persistent phenomenon, even though its incidence has subsided with economic development. In this paper, we conduct a panel study of 101 countries from 1980 to 2004 where child labor is proxied by the labor force participation of children aged 10--14. We look at the relationships between child labor and investments in human capital, foreign direct investments, countries’ openness to trade, and credit market constraints. We depart from the contributions of cross-country studies by employing a fixed effects instrumental variable (FE-IV) panel data model by employing a fixed effects instrumental variable (FE-IV) panel data model to account for unobserved heterogeneity and endogeneity of child labor and individual country-specific effects. We find support for the conclusions of the above-mentioned studies: countries that trade more and have a higher stock of foreign direct investment have less child labor. More generally, we find that trade openness, investments in human capital, and financial development are associated with a reduction of child labor. Child labor persists but tailored policies on trade, investment, and financial reform can lessen child labor along with economic growth, improvements in health, and rising standards of living.