Export and imperfect hedging

Abstract

This paper considers the effects of trade liberalization on child labor that arises out of subsistence needs. It argues that favorable income effects are most likely to reduce the need for child labor in the South, even when export goods have a necessity character. However, in very poor economies, aggregate hours of child labor can also increase as a result of more open trade. Although the poorest families are the ones who benefit the most from trade in a Heckscher – Ohlin setting, their income gains might not be high enough to make them withdraw their children from work, while adverse income effects can raise the incidence of child labor among the less poor. The paper provides empirical support for the argument by finding that in a country panel, increases in trade openness are associated with significantly smaller reductions in child labor among the poorest food exporters than among food exporters on average.