Demand for Child Labor in a Dynamic North-South Trade Model

This paper examines how trade liberalization affects the demand for child labor employing a dynamic North-South trade framework. Innovating firms in the North are assumed to be heterogeneous and differ in their marginal costs while imitating firms in the South are homogeneous and may employ children in production to reduce their marginal cost. The demand for child labor is dependent not only on domestic factors such as wages of adults and children, but also on the endogenous rate of innovation in the North and the rate in which these goods are imitated in the South. Reductions in trade costs increase the demand for new goods produced in the North and reduce the demand for old goods produced in the South. An increase in the population of the North and/or South will increase the overall demand for child labor although the child labor participation rate will increase (decrease) when the population in the North (South) increases