Globalization, Child Labour and Development Policies: A Theoretical Analysis

Published date01 February 2013
Date01 February 2013
Subject MatterArticles
Child Labour and
Development Policies:
A Theoretical Analysis
Rakhi Banerjee
Ranjanendra Narayan Nag
Incidence of child labour is a disturbing feature of an emerging market econ-
omy. In the present article, we will try to explore whether globalization policies,
namely, agricultural trade liberalization and methods aimed at attracting foreign
direct investment (FDI), have had any negative impact on the incidence of child
labour in a developing economy. We will also examine whether decrease in
incidence of child labour would increase social welfare and welfare of the child
labour-supplying family unambiguously. For our work, we use a three-sector gen-
eral equilibrium structure. We intend to highlight that effects of globalization are
crucially dependent on factor-intensity ranking and factor specificity. Multiple
cross effects that are present in a three-sector general equilibrium structure are
the driving forces behind the results.
JEL: D50, F11, F63, I131
Child labour, agricultural dualism, globalization, FDI, Agricultural Trade
Liberalization, child labour, welfare
Incidence of child labour is a disturbing feature of an emerging market economy.
In International Labour Organization’s (ILO, 2010) quadrennial Global Report on
Child Labour, it was highlighted that the global number of child workers has
decreased from 222 million to 215 million, or 3 per cent, in the time span of
Rakhi Banerjee, Assistant Professor, Department of Economics, Gurudas College,
Kolkata. E-mail:
and Ranjanendra Narayan Nag, Associate Professor, Department of Economics,
St. Xaviers’ College (Autonomous), Kolkata. E-mail:
Foreign Trade Review
48(1) 83–104
©2013 Indian Institute of
Foreign Trade
SAGE Publications
Los Angeles, London,
New Delhi, Singapore,
Washington DC
DOI: 10.1177/001573251204800104
Foreign Trade Review, 48, 1 (2013): 83–104
84 Rakhi Banerjee and Ranjanendra Narayan Nag
2004–2008. This reduction is suggestive of a slowing down in the global pace of
reduction of child labour. The report also brought into focus the fact that the glo-
bal economic crisis would pose a hindrance in the path of eradicating child labour
by 2016. The number of child workers has fallen by 10 per cent in the age group
of 5–14 years. Even as child workers engaged in hazardous works decreased by
31 per cent, a mammoth 115 million children are still engaged in hazardous work.
Whereas child labour among girls has decreased by 15 per cent, it has increased
among boys by 7 per cent. It should also be highlighted that child workers in the
age group of 15–17 years has increased by 20 per cent (ILO, 2010). The report
highlighted the fact that child labour is falling in Asia Pacific and Latin America
and the Caribbean regions. However, in sub-Saharan Africa, there has been an
increase in child labour in both relative and absolute terms. In this region, one in
every four children is engaged in child labour. According to conventional litera-
ture, factors such as poverty, poor quality education, attitude of parents, capital
market distortions and dualistic economic setup with presence of both formal and
informal sector play an important role in determining the supply of child labour in
a transitional economy.
Of all the factors responsible for increase in the supply of child labour, policy-
makers of developing countries tend to agree on the fact that abject poverty is the
root cause.1 There is a huge empirical literature in development economics which
focuses on the nexus between poverty and child labour. Studies of Admassie
(2002), Basu and Tzannatos (2003), Basu and Van (1998), Edmonds (2001),
Grootaert and Patrinos (1999), among others, hold poverty to be the main cause
behind the problem of child labour in transitional developing economies.2
However, it should be noted that some studies which used micro-level data have
failed to show a strong correlation between household poverty and incidence of
child labour. Bhalotra and Heady (2002) used data from Pakistan and Ghana to
demonstrate that households with larger land ownership (signifying greater
wealth) send greater number of children to work.3
There is also evidence of immense theoretical literature on the incidence of
child labour. The exemplary contributors in this area of study include Basu (1999),
Basu and Van (1998), Dessy (2000), Gupta (2002), Jafarey and Lahiri (2002),
Ranjan (1999), among others. Basu and Van (1998), through their study, demon-
strated that if adult labour and child labour are assumed to be substitutes (substitu-
tion axiom) and leisure of child labour for a poor household is considered luxury
(luxury axiom), then low adult wage rates would increase the incidence of child
labour. According to this theory, there exists a critical adult wage rate. If any adult
worker earns less than the critical level, then the children will be sent to work in an
effort to supplement the income. Basu and Van (1998) were of the view that any
labour market regulations which would raise the level of adult wage would curb
the problem of child labour. Baland and Robbinson (2000), Jafarey and Lahiri
(2002) and Ranjan (1999) focused on the relationship between capital market
imperfection and incidence of child labour. Dessy (2000) showed that in econo-
mies where benefits of having children is less than costs associated with their

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