Trade Openness, Foreign Direct Investment and Child Labor

The skeptics of globalization argue that increased trade openness and foreign direct investment induce developing countries to keep labor costs low, for example, by letting children work. This article argues that there are good theoretical reasons why globalization might actually have the opposite effect. We test this with various measures of child labor and provide the first analysis of foreign investment in addition to trade. We present evidence that countries that are more open to trade and/or have a higher stock of foreign direct investment also have a lower incidence of child labor. This holds for the labor force participation rate of 10-14-year old children, the secondary school nonattendance rate and a count measure of economic sectors with child labor incidence as the dependent variables. Globalization is associated with less, not more, child labor.