Trade Sanctions and the Incidence of Child Labor

The purpose of this paper is to develop an imperfect competition model of a small open developing country to analyze the effects of trade sanctions on the incidence of child labor. We show that a uniform tariff levied by the developed countries on imports produced with the help of child labor is a failure in terms of reducing child labor. A more effective course of action would be a firm‐specific tariff where the tariff rate varies with the amount of child labor incorporated in a single good. While such an instrument reduces child labor, however, it worsens the children’s well‐being due to lower income and consumption. Contrary to expectations, the entrepreneurs in the developing countries, supposedly the main beneficiaries of child labor, are better off under trade sanctions as they realize higher profits.