《Intra-industry trade and the demand for child labor》.pdf

International Journal of Economic Theory doi: 10.1111/ijet.12040 Intra-industry trade and the demand for child labor Kristian Estevez∗ and Ting Levy† This paper examines the role of firm heterogeneity in the demand for child labor in an intra- industry trade setting. Firms differ in their productivity levels and can employ children in producing a heterogeneous good. The effect of trade liberalization will depend on how changes in a firm’s productivity parameter affects the relative productivity between adults and children. When the productivity elasticity of children is higher (lower) than that of adults, trade liberal- ization will result in an increase (decrease) in the demand for child labor. Increasing the risk of using child labor will decrease its demand in most scenarios. Key words child labor, firm heterogeneity, intra-industry trade JEL classification F1, J4, O1 Accepted 23 October 2013 1 Introduction The phenomenon of child labor is a stubborn problem that continues to plague the least developed countries and contributes to the perpetual cycle of poverty from which many have been unable to exit. Although the incidence of child labor has been in decline over the past few decades, it remains persistent in the poorest nations. Worldwide approximately 14 percent of children between ages 5 and 14 are economically active, but the percentage of child laborers in Asia is 17 percent, and in sub- Saharan Africa 25 percent, according to the International Labour Organization (ILO 2006). Research on the causes of child labor has grown over the last 15 years, albeit principally rooted in one side of the story, namely the decisions of households that determine the supply of child labor.1 Edmonds and Pavcnik (200