Empirical evidence suggests that the incidence of child labour taken as a whole has declined in the developing countries with economic growth due to foreign capital. But, in some high-growth-prone areas, the problem has been on the rise. A pertinent question is why liberalized investment policies have produced dissimilar results in different cases. The present paper is intended to provide an answer to the above question using a three-sector general equilibrium framework with two informal sectors and a non-traded final commodity. The paper is also designed to investigate the efficacy of an education subsidy policy and a lump-sum tax on the richer people in controlling the problem of child labour. We find that the effects of different policies on child labour crucially hinge on the relative intensities in which child labour and adult labour are used in the two informal sectors. However, we find that on the whole a policy of subsidy on education is more effective in comparison with the policy of economic growth with foreign capital in eradicating the prevalence of the evil in the system. Copyright � 2007 The Authors; Journal compilation � 2007 Blackwell Publishing Ltd and The University of Manchester.

This paper is an attempt to analyse the consequence of trade liberalization in agriculture in the developed countries on the incidence of child labour in a developing economy in terms of a threesector general equilibrium model with informal sectors. Adult labour and child labour are substitutes for each other in the two informal sectors of the economy and are used together apart from capital in producing two exportable commodities. The interesting result that appears from the analysis is that agricultural trade liberalization in the developed countries may be effective in bringing down the incidence of child labour in the system. The paper substantiates the desirability of trade liberalization in agriculture in the developed nations from the perspective of the developing economies for reasons other than welfare improvement.

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Abstract:We provide a theoretical explanation why agricultural subsidy policies are likely to fail to ensure simultaneous eradication of the incidence of child labour and improvement in the well-being of the poor working families in terms of a three-sector general equilibrium model with child labour and agricultural dualism. We identify both demand and supply side effects of any policy intervention on child labour. We also suggest two alternative policies, a scheme of direct cash transfer to poor people and economic growth through foreign direct investment (FDI), both of which would be effective in achieving these twin objectives of a welfare government.

Empirical evidence suggests that use of child labor as domestic help has increased significantly in recent years although the overall incidence of child labor across the globe has declined satisfactorily. This should draw the attention of economists and policymakers because domestic child labor is considered as exploitative and in many cases hazardous. This paper purports to explain this apparently perplexing finding theoretically in terms of a three‐sector general equilibrium model with a nontraded sector where only child labor is used to render services to the richer section of the society. The analysis shows how FDI‐led economic growth increases the size of the services sector although it lowers the overall incidence of child labor in the economy and improves the welfare of the poor families that supply child labor. Finally, a composite policy has been recommended that can deal with all three aspects favorably.