Child Labor, Corruption, and Development

Abstract

Employing an overlapping generations model with endogenous education choice and corruption, we investigate how child labor and corruption influence human capital accumulation and development. We show that multiple steady states exist in the economy. One steady state has a high level of human capital, while the other has a low level of human capital. In the steady state with a low level of human capital, child labor and corruption exist, fertility and child mortality rates are high, and the welfare level is low. Conversely, in the steady state with a high level of human capital, child labor and corruption are diminished, fertility and child mortality rates are low, and welfare is high. In addition, we show that it is difficult to steer an economy away from a poverty trap with child labor and corruption because bureaucrats of the current generation are opposed to policy changes, such as the reinforcement of monitoring and penal regulations. However, we highlight the possibility for the government to develop the economy in the poverty trap by implementing an education policy, which is Pareto improving.