Ethical production and export performance across destinations: evidence from Myanmar

Ethical production in global supply chains has become an important issue in international trade. This study examines whether and how exporting manufacturers in a developing country are rewarded for their decision to pursue ethical production by raising labor standards. I use customs data on the exports and imports of Myanmar apparel firms combined with survey data on those firms’ working conditions measuring the degree of compliance with international labor standards. I find correlational evidence that firms are rewarded for providing better working conditions when they export to Western countries. First, firms with better working conditions export products at higher prices. Second, these firms earn higher revenue from exporting to a Western country than other firms exporting to the same country, but no such difference is found for exporting to Asia. Third, firms with better working conditions tend to have a higher proportion of sales from exports to Western countries than other firms. These results are consistent with the trade model presented in this paper in which firms with the given working conditions decide on their output and sort themselves into destination markets. The results in this paper suggest that adoption of socially responsible practices is likely to have positive impacts on firms in developing countries if the firm is exporting to the markets in which the consumers care about these practices.