Sylvain Dessy

A defense of compulsive measures against child labor

Abstract This research characterizes policies likely to trigger the onset of a growth-enhancing fertility transition, even for an economy with initially a low per capita income. The environment considered is one where childrens time has an economic value, and schooling and child labor are the main competing claims on a childs time. Using a one-parent-family overlapping generations model, I argue that compulsive measures against child labor are justifiable as an integral part of an intervention that combines incentives and regulations in order to eliminate child labor. The analysis highlights fertility and child labor dynamics as shaped by the relative cost of children.

Child labor and coordination failures

In this paper, we show how coordination failures may explain the prevalence of child labor in developing countries. We do so within a simple game-theoretic setup. Child labor arises in our environment because of the lack of a coordination mechanism between parental decisions to invest in the human capital of their children and firms decisions to invest in skill-intensive technology. Governmental policies that help coordinate expectations lead to the disappearance of child labor.

On the Mechanics of Trade-Induced Structural Transformation

Gains from trade come from a certain degree of specialization among trade partners. Specialization in the case of an agriculture-based developing country might be feared to imply a higher reliance than ever on low skill labor. Trade might thus be seen as a step away from the much awaited structural transformation of the economy, which can only come with increases in productivity. In this paper, we suggest that it needs not be the case. We show, within a dynamic general equilibrium model, that trade openness can in fact trigger the structural transformation of such an agrarian society. It can induce a higher reliance on human capital accumulation and produce the necessary productivity gains for an economy to pick up. Our model provides an illustration of the mechanics behind such structural transformation.

Microfinance and Female Empowerment

In the informal economy of developing countries, female entrepreneurs face a comparative disadvantage for operating high-productivity activities, owing to the prevalence of patriarchal forms of business regulations. Yet, for microfinance institutions (MFIs) to succeed in enhancing female empowerment, increased access to credit must enable female entrepreneurs to tap into the range of high-productivity activities. So when the costs of legality are too high in developing countries, and the informal economy becomes the only affordable venue for operating a business venture, this paper shows that access to microfinancee services becomes only necessary, but not sufficient for female empowerment. Based upon a game-theoretic model of activity choices by ex ante homogeneous women, we argue that conditioning well-trained womens access to credit to the adoption of high-productivity activities may enable MFIs to induce the emergence of networks of female entrepreneurs large enough to mitigate patriarchal practices that raise the costs of operating such activities in the informal economy.

Foreign Direct Investments in Africa's Farmlands: Threat or Opportunity for Local Populations?

We study the welfare effects of government-backed FDIs in Africa’s farmlands. We build an occupational choice model featuring four mechanisms driving these effects. First, local farming is subject to social arrangements prescribing that farmers share their crop surplus with kin. Second, proceeds from land investment deals are invested to make modern inputs affordable to local farmers. Third, these deals cause some farmers to shift to wage employment. Fourth, they also entrench export-oriented agriculture, at the expense of local markets. We show that three conditions are sufficient for such deals to make local people better off: (i) the state has a high capacity and willingness to negotiate deals that benefit local people; (ii) these deals create enough jobs; (iii) wage employment make displaced farmers better off. Fulfilling these three conditions, however, may conflict with the interests of profit-maximizing foreign investors.

Is Temporary Emigration of Unskilled Workers a Solution to the Child Labor Problem

This paper reassesses the case for temporary emigration of unskilled workers as a solution to the child labor problem, based upon a general equilibrium model of migrant remittances, parental investment in child schooling, and intersectoral allocation of capital. Counterfactual simulations uncover a U-shape effect of temporary emigration on the incidence of child labor, suggesting that the case for temporary emigration as a solution to the child labor problem may be weak.

Whither the Progressive Tax

The progressive wage tax is the instrument commonly used by democracies to fund public expenditures. Yet it still divides opinions about its impact on skill formation. We develop a general equilibrium model to analyze this impact, in the context of uncertain return on higher education. We show that the quantitative impact on skill formation of switching from the flat to the progressive tax varies with the level of efficiency with which higher education imparts graduates with suitable skills. This impact is negative when the level of efficiency of higher education is low and positive when it is high.

The Global Fight Against Child Trafficking: How Can It Be Won?

We study how countries can coordinate their national action plans so as to fight global child trafficking. As both the demand and supply of trafficked children are transboundary in scope, international cooperation may be necessary to mitigate cross-country externalities. We show that specialization is the main feature of international cooperation. We also show that the pattern of specialization depends only on the level of economic development of state-parties. In particular, specialization leads to asymmetric national action plans when state-parties have different levels of economic development: the governments of poorer countries specialize on fighting the supply of trafficked children from their territories, while the governments of richer countries specialize on fighting the demand arising within their territories.

The Political Economy of Social Inclusion

We build a political economy model of state policy choice highlighting the challenges to breaking barriers to the adoption of inclusive policies in Africa. We highlight necessary and sufficient conditions for a political leader to gain from implementing exclusive policies: (i) Implementing inclusive policies must be risky; (ii) the political leader must have adequate access to an overseas’ financial safe haven as a technology for protecting the spoils from implementing exclusive policies, or investing the looted funds in the domestic economy must sufficiently contribute to mitigate the risk of a revolution. Our results suggest that breaking barriers to inclusive policies in Africa is not an easy task. Bans on international money-laundering schemes may not be sufficient if domestic money laundering is easy and sufficiently discrete.

Birds of a Feather: Fiscal Conditionality and Recipient Country Ownership in Aid Allocation

This paper attempts to reconcile aid-conditionality and recipient country ownership of its development process as mutually compatible ingredients of aid effectiveness. To be effective, aid itself must contribute to the end of aid. For this happen, the recipient government must, in the meantime, develop a capacity for becoming financially self-reliant. However, even the government of a country that owns its development process does not necessarily have the incentive to become financially self-reliant when aid resources are available. Conditioning aid allocation to the recipient governments commitment to reach a prescribed tax revenue target may therefore help recipient countries gain from aid while weaning themselves from chronic dependence on it. We make these points using an endogenous growth model featuring domestic tax revenue and grant inflows as the mechanism for mitigating school user fees constraining education access in recipient countries.