Judge Clark Douglas asked a few questions about Pinocchio in his excellent review;
1)How Pinocchio and Jiminy are able to speak underwater?
Answer: Pinocchio is a puppet so wouldn't have a problem with water pouring into his lungs so it's possible he could speak underwater, now how Jiminy Cricket talked let alone survived underwater is beyond me. Also not sure how Pinocchio could have drowned after the Monstro chase if he didn't actually need to breath underwater.
2)How exactly does the whole "turning boys into donkeys" thing work, and how does leaving Pleasure Island stop the process?
Answer: The "turning boys into donkeys" has to be answered with "It's magic", where we have good magic from the Blue Fairy we have dark magic from the Coachman and his goons, and I'm guessing the magic is a localized effect so once you escape it's radius you're good. My question is how profitable could it be to have a huge amusement park trashed by bunch of boys just to get a dozen or so donkeys. Doesn't seem to be a fiscally sound plan unless donkeys are worth their weight in gold.