DP4309 | International Trade and Child Labour: Cross-Country Evidence

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We explore the relationship between greater exposure to trade (as measured by openness) and child labour in a cross-country setting. Our methodology accounts for the fact that trade flows are endogenous to child labour (and labour standards more generally) by examining the relationship between child labour and variation in trade based on geography. We find that countries that trade more have less child labour. At the cross-country means, the data suggest an openness elasticity of child labour of -0.7. For low-income countries, the elasticity of child labour with respect to trade with high-income countries is -0.9. These relationships appear to be largely attributable to the positive association between trade and income. When we control for the endogeneity of trade and for cross-country income differences, the openness elasticity of child labour at cross-country means is much smaller (-0.1) and statistically insignificant. We consistently find a negative but statistically insignificant association between openness and child labour conditional on cross-country income differences when we split the sample into different country groups, consider only trade between high and low income countries, or focus on exports of unskilled-labour intensive products from low income countries. Thus, the cross-country data do not substantiate assertions that trade per se plays a significant role in perpetuating the high levels of child labour that pervade low-income countries.