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Resolving the paradox of social standards and export competitiveness

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  • Stephen DeLoach
  • Jayoti Das

Abstract

Over the last decade there has been increasing international pressure on countries to raise 'social standards' (i.e. production standards based on environmental and labor conditions). Currently, the World Trade Organization does not allow countries to impose minimum standards on imports based on environmental or labor standards because it is assumed to undermine competition. There is no consensus in the empirical literature, however, to support this claim. In fact, the evidence suggests that while stronger environmental standards hurt competitiveness, stronger labor standards do the opposite. This paper offers one possible explanation for this paradox. In a simple model of incomplete information, externally imposed standards may either increase or decrease the competitiveness of infant firms from developing countries depending on the degree of complementarity between the standard and the production of high-quality goods.

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File URL: http://www.tandfonline.com/doi/abs/10.1080/09638190802249821
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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal The Journal of International Trade & Economic Development.

Volume (Year): 17 (2008)
Issue (Month): 4 ()
Pages: 467-483

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Handle: RePEc:taf:jitecd:v:17:y:2008:i:4:p:467-483

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Related research

Keywords: asymmetric information; competitiveness; product quality; production standards;

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References

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  1. Chisik, Richard, 2003. "Export industry policy and reputational comparative advantage," Journal of International Economics, Elsevier, vol. 59(2), pages 423-451, March.
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  10. Richard Chisik, 2010. "Reputational Comparative Advantage and Multinational Enterprise," Working Papers 016, Ryerson University, Department of Economics.
  11. Leland, Hayne E, 1979. "Quacks, Lemons, and Licensing: A Theory of Minimum Quality Standards," Journal of Political Economy, University of Chicago Press, vol. 87(6), pages 1328-46, December.
  12. Jayoti Das & Stephen DeLoach, 2003. "Strategic trade policy in the presence of reputation spillovers," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 12(2), pages 101-116.
  13. Eugene Beaulieu & James Gaisford, 2002. "Labour and Environmental Standards: The 'Lemons Problem' in International Trade Policy," The World Economy, Wiley Blackwell, vol. 25(1), pages 59-78, 01.
  14. Uri Ronnen, 1991. "Minimum Quality Standards, Fixed Costs, and Competition," RAND Journal of Economics, The RAND Corporation, vol. 22(4), pages 490-504, Winter.
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