Trade and Child Labor: A General Equilibrium Analysis (IZA DP No. 1514)
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IZA Seminar

Place: Schaumburg-Lippe-Str. 9, 53113 Bonn

Date: 26.07.2005, 12:15 - 13:30

   

Presentation by 

 Subhayu Bandyopadhyay (Federal Reserve Bank of St. Louis)
   

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 nontraded
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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