Basically, anything related to economics is more than likely originally something I found on Tyler Cowen's blog. Today is no different. He notes a post from this blog on a recent study on the negative relationship between child labor and international trade. It's a NBER working paper by Eric Edmonds and Nina Pavcnik. What they note is that there is endogeneity between child labor and international trade which obscures the direction of causality. Therefore, it's necessary to break this circle by instrumenting trade using some variable correlated with trade but not with child labor.
They do this - again based on the abstract - using what looks like a gravity model of trade. Gravity models incorporate geography into trade flows. It allows for distance between trading partners to impact the level of trade. It's called gravity because it is similar to theories of large bodies in space where the proximity between one another affects the pull toward one another. This is the second paper I've seen in international trade that deals explicitly with this problem of endogeneity by instrumenting trade with a gravity model. Anyhow, similar to the previous post, this is an interesting finding since normally we associate increased industrialization with child labor - at least historically, it appears to have progressed that way. But this paper seems to say that child labor is actually an "inferior good" of sorts - that as our incomes increase, we voluntarily pull children out of the working sector. Poverty, not wealth, is the cause of child labor.
Posted by scott at March 19, 2004 08:05 AM | TrackBack