Trade Adjustment Costs in Developing Countries: - World Bank ...

11Trade, Child Labor, and Schoolingin Poor CountriesERIC V EDMONDSAn increase in international trade affects poor children in low-income economiesby changing relative prices and altering living standards. The purpose of thisnote is to review the existing evidence on how trade influences child time allocation,including child labor and schooling.Trade’s effect on the living standards of the poor is generally found to be thedominant channel through which trade influences child time allocation and schooling.Trade can influence the living standards of the poor by changing consumptionprices and through altering labor income and family asset income. It is this latterchannel, changes in labor and asset incomes, which researchers have highlightedas the primary pathway through which trade changes child time allocation.Relative price changes could be important for the link between trade and childlabor. This essay reviews the potential ways that trade influences child laborthrough relative price changes, and discusses why there is little evidence in empiricalresearch of these channels operating. It is useful to distinguish between directchannels—trade changes child labor demand—and indirect pathways, wherechanges in child time allocation result as a collateral consequence of trade’s impacton the overall economy. The direct effects occur when trade directly impactsproduction and thereby labor demand in the traded sector. Direct effects can alterthe types of employment opportunities available to children or the child’s potentialeconomic contribution from working, which this essay will refer to as the‘child’s wage’ even though few children work for wages. Indirect effects occurwhen trade affects sectors beyond that in which there is trade, perhaps throughinputs, or when trade has important general equilibrium effects. These indirect effectscan also alter wages and employment opportunities. Other important indirecteffects might come from perceptions of changes in returns to education orby influencing occupational choice. Through impacting consumer prices, tradecan alter the implicit cost of leisure. Despite many possible channels, there isvery little evidence supporting any connection between trade and child time allocation,other than through the impact of trade on the living standards of thevery poor.This observation of the primacy of the living standards of the poor is for tworeasons. First, among the poor, the standard of living is one of the most impor-