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The Effect of FDI on Child Labor

Ronald B. Davies and Annie Voy

IIIS Discussion Paper No. 215


This paper examines the extent to which foreign direct investment (FDI) affects child labor. Using 1995 data for 145 countries, we find that, contrary to common fears, FDI is negatively correlated with child labor. This effect, however, disappears when controlling for per capita income. After doing so, we find no robust effect of either FDI or international trade on child labor. This result is robust to corrections for the endogeneity of FDI, trade, and income. Furthermore, this result is confirmed when using data from earlier years and when using fixed effects. This suggests that the impact of FDI and trade on child labor, if any, is the increases in income they generate.

JEL Classification: F14, F16, F23Key Words: Child Labor, Foreign Direct Investment, International Trade

Last updated 28 August 2014 by IIIS (Email).