As of today, there has not been a large clinical study that has been done to look at the effects of caffeine on a child's physical and mental development. It is widely believed that caffeine likely has little to no effect on a child's growth. However, caffeine is not a benign substance. It is a stimulant which can have many other negative effects on a child's health. For example, caffeine can raise the child's blood pressure. While most kids do not have a problem with blood pressure, this is still a consideration in some circumstances. Another negative effect is the fact that caffeine disrupts a child's sleep. Kids that drink caffeinated beverages in the afternoon to evening are more likely to have trouble falling asleep that night. Lack of sleep makes it harder for kids to function in school. Finally, caffeine can cause kids to need to urinate more, which can contribute to dehydration.
I suggest that your sibling schedule an appointment for your niece to be seen by her pediatrician
. This type of question is very appropriate for him or her. Her pediatrician will be able to make dietary recommendations that are specific to your niece's current physical development.