Child Labor and FDI: Evidence from Vietnam

Abstract

The objective of this paper is to provide evidence regarding the impact of FDI on child labor in Vietnam. Starting with the reforms in the late 1980s Vietnam experienced an economic boom which led to an important decline in poverty and child labor. The 2000 decade witnessed a drastic acceleration of the structural transition away from agriculture. In this paper we merge repeated household surveys and enterprise censuses to explore the contribution of foreign firms to the decline in child labor. We find that while higher demand for labor by domestic firms tends to increase child labor, the entry of FDI in both the manufacturing and services sectors have contributed to reduce the labor supply of children. The impact of FDI in the service sector has so far been smaller than in manufacturing. This is partly due to the fact that FDI into the services sector has been limited, more capital-intensive and concentrated in the richest provinces, but also perhaps to the fact that manufacturing firms may be more easily targeted by trade policy in the rest of the world or consumer boycotts associated with child labor