Saturday, May 31

FDI causes child labour, yes? Wrong!

It is almost a truism in the modern day and age that FDI is bad, and one ways that it shows up is that it causes child labour. What nobody see's is the impact on the child itself (see here for an interesting email discussion that I partook in). Blame the foreigner for making our children work, while we are quite happy to have children work as servants or not to provide any other economic way to allow the children to actually study. But its better to kick out the foreign investor, no?

But here's a study which checks what is the impact of FDI on child labour. The authors find that FDI is negatively correlated with child labour and even after controlling for per capita income, the effect totally disappears. Nothing, no impact, zilch, zero, nada.

Another very interesting conclusion that the authors come to is and I quote, "A key policy implication of this finding is that policies that increase the income effects of FDI may be especially useful in combating child labour. Such policies include payroll tax reductions that encourage multinationals to increase employment and wages. Thus, rather than interpreting these findings as an indication that FDI has no effect on child labour, we believe that our results point towards the need for nuanced policy that exploits these indirect effects."

This was a very curious conclusion to draw. I can understand concluding that dont swear at FDI, guys, if nothing, there is no relationship to child labour at all. But why talk about income effects? How will reducing payroll taxes actually help improve child labour? Well, the fact remains that child labour exists because of a variety of factors, not least because their parents are not gainfully employed. Get their parents into employment and you will lop off a very large number of children having to work. Which parent would want to see their children work when they could be playing and studying? But, all those payroll taxes do is to make it difficult to increase employment.

Ronald B. Davies and Annie Voy, The Effect of FDI on Child Labor, Journal of Development Economics In Press. 

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