Impact of Trade Versus Non-trade Policy on Child Labour in a Two Sector General Equilibrium Framework

Abstract

Following the sanctions suggested by WTO, the developed nations have been advocating that trade in commodities using child labour in many developing nations is unfair, and be banned. They, therefore, advocate the use of restrictive trade policies by the rest of the world or by the developing countries themselves to restrict the use of child labour in the exporting of their products. Had it not be a fact that the use of child labour is conditioned the economic compulsions of poor parents in developing countries, this position would have been acceptable as fair on ethical and normative grounds. In the present chapter, we have considered a competitive two-sector general equilibrium model of a small open less-developed economy, which exports child labour-intensive products to examine the effectiveness of two kinds of trade restrictive policies on the incidence of child labour: (i) in one case, rest of the world imposes trade restrictions on the exported product of the small open economy, which is produced using child labour and (ii) in the second other case, the policy of protectionism in import competing sector has been taken into consideration. In both cases, we have separately investigated the impact on demand for and supply of child labour, as well as on equilibrium level of employment. One interesting result of our work suggests that restrictive trade policy may fail to reduce the perverseness of the incidence of child labour supply. In fact, the first three propositions derived from our model indicate that due to the imposition of trade restriction on the exported product of the small open economy by the rest of the world, (a) capital owners shall gain, while both adult and child workers shall be adversely affected, but (b) the incidence of child labour supply may or may not be perversely affected, when the adult worker’s utility function is assumed to be additive separable in nature and (c) may in fact increase the supply of child labour unambiguously when the adult worker’s utility function is assumed to be Cob–Douglas in nature. This result, thus, challenges the popular view in favour of imposing trade sanctions on the import of those goods from the developed countries which are produced using child labour.