Child labor, schooling and international trade

Sirsha Chatterjee, Purdue University

Abstract

Whether countries gain comparative advantage from low labor standards, such as child labor use, is an important empirical issue in trade policy. The first essay in this dissertation addresses this question by estimating the effect of child labor stocks on specialization patterns in a cross-country framework. Macro studies estimating the effect of child labor on trade suffer from two main problems of identification-aggregation biases and endogeneity. This paper addresses the former by using disaggregated trade data and estimating the effect of child labor stocks on the composition of trade structure as opposed to the volume of aggregate trade. Since specialization patterns may be correlated with the demand for child labor, the study uses child mortality rates as an instrument of identification to deal with endogeneity. Child mortality is well documented in the development literature as a strong explanation for child labor while being uncorrelated with trade flows at the sectoral level. I use the estimates to conduct a counter-factual exercise analyzing the impact of a child labor ban on countries’ trade structure. A key result is that increases in child labor raise export shares of primary, land-intensive commodities. A ban on child labor leads to significant declines in net export shares of countries in sectors such as food, minerals and small manufactures. Low income, child labor-rich countries’ comparative advantage declines by substantial amounts on average, especially in sectors of importance such as food. The first essay of this dissertation is one of the cross-country studies that document a significant and negative correlation between commodity trade and human capital accumulation. On the other hand, studies using household data have shown that increases in the traded prices of child labor-intensive commodities reduce child labor and raise schooling in developing countries through income effects. The second essay in this dissertation estimates whether these income effects are strong enough to dominate in the aggregate. It uses a panel dataset on detailed school enrollments to estimate the impact of country-specific international commodity price fluctuations on schooling investment. Price shocks are exogenous to countries that export less than 10% of the global trade in a commodity and because commodity trade depends on natural resources. This paper finds that increases in the prices of food exports raises schooling while increases in prices of food imports lowers schooling. The income effects are relatively stronger for high income countries. However food export price increases raise child labor participation rates. Thus income effects of the price increase raise schooling on average, but do not reduce child labor. JEL Classifications: O13, J24, F16, O19, O11

Degree

Ph.D.

Advisors

Hummels, Purdue University.

Subject Area

Economics

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