Credit Market Reform, Foreign Capital and Child Labour: A Theoretical Analysis

Abstract

The paper is purported to explore the implications of a credit market reform policy and an overall economic expansion through inflows of foreign capital on the incidence of child labour using a three-sector general equilibrium model. A separate household sector producing child labour has been introduced for the purpose of analysis. It shows that policies to remove imperfection in the informal credit markets may be desirable to mitigate the child labour problem even in the absence of any schooling system and possibility of skill improvement. But, an overall economic expansion (for example, capital accumulation through inflows of foreign capital) may in fact be counterproductive and intensify the child labour problem. The effects of these two policies on national welfare have also been studied.