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Using a three-sector specific-factor Harris-Todaro type general equilibrium model the paper demonstrates how an inflow of foreign capital might produce favourable effect on the incidence of child labour in a small open dual economy. The welfare of the working families is likely to improve due to the policy even though the urban unemployment situation of unskilled labour may not get better. Poverty has been attributed as the single largest factor behind the incidence of child labour in a developing economy. It compels people to have large families and children to go out in the job market and earn their own means of livelihood.
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