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Trade and Labor Standards in the European Union: A Gravity Model Approach

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Abstract

Using a gravity model, we examine whether labor standards are important determinants of bilateral export performance for EU-15 countries over the period 1988-2001. We assess the conventional wisdom that countries with low labor standards and less stringent regulations have performed better in terms of trade performance and use a panel data set in a triple-indexed gravity model to conduct our empirical investigation. Our empirical results indicate that labor standards matter, but that the conventional wisdom does not always hold. The standard variables used in gravity equations conform to theoretical expectations and are highly significant.

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Bibliographic Info

Paper provided by Carleton University, Department of Economics in its series Carleton Economic Papers with number 08-08.

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Length: 35 pages
Date of creation: 28 Oct 2008
Date of revision:
Publication status: Published: Carleton Economic Papers
Handle: RePEc:car:carecp:08-08

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Keywords: international trade; labor standards; gravity equation;

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References

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  1. James E. Anderson & Eric van Wincoop, 2001. "Gravity with Gravitas: A Solution to the Border Puzzle," NBER Working Papers 8079, National Bureau of Economic Research, Inc.
  2. Bergstrand, Jeffrey H, 1989. "The Generalized Gravity Equation, Monopolistic Competition, and the Factor-Proportions Theory in International Trade," The Review of Economics and Statistics, MIT Press, vol. 71(1), pages 143-53, February.
  3. I-Hui Cheng & Howard J. Wall, 2005. "Controlling for heterogeneity in gravity models of trade and integration," Review, Federal Reserve Bank of St. Louis, Federal Reserve Bank of St. Louis, issue Jan, pages 49-63.
  4. Anderson, James E, 1979. "A Theoretical Foundation for the Gravity Equation," American Economic Review, American Economic Association, American Economic Association, vol. 69(1), pages 106-16, March.
  5. Gabriel Rodriguez & Yiagadeesen Samy, 2003. "Analysing the effects of labour standards on US export performance. A time series approach with structural change," Applied Economics, Taylor & Francis Journals, Taylor & Francis Journals, vol. 35(9), pages 1043-1051.
  6. Laszlo Matyas, 1997. "Proper Econometric Specification of the Gravity Model," The World Economy, Wiley Blackwell, vol. 20(3), pages 363-368, 05.
  7. Cees van Beers, 1998. "Labour Standards and Trade Flows of OECD Countries," The World Economy, Wiley Blackwell, vol. 21(1), pages 57-73, 01.
  8. Vivek Dehejia & Yiagadeesen Samy, 2004. "Trade and labour standards: theory and new empirical evidence," The Journal of International Trade & Economic Development, Taylor & Francis Journals, Taylor & Francis Journals, vol. 13(2), pages 179-198.
  9. Arellano, Manuel & Bond, Stephen, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 58(2), pages 277-97, April.
  10. Peter Egger, . "A Note on the Proper Econometric Specification of the Gravity Equation," WIFO Working Papers, WIFO 108, WIFO.
  11. David Kucera & Ritash Sarna, 2006. "Trade Union Rights, Democracy, and Exports: a Gravity Model Approach," Review of International Economics, Wiley Blackwell, vol. 14(5), pages 859-882, November.
  12. Alan Deardorff, 1998. "Determinants of Bilateral Trade: Does Gravity Work in a Neoclassical World?," NBER Chapters, in: The Regionalization of the World Economy, pages 7-32 National Bureau of Economic Research, Inc.
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Cited by:
  1. Häberli, Christian & Jansen, Marion & Monteiro, José-Antonio, 2012. "Regional trade agreements and domestic labour market regulation," ILO Working Papers, International Labour Organization 470016, International Labour Organization.
  2. Leitão, Nuno Carlos & Tripathi, Sabyasachi, 2013. "Portuguese Trade and European Union: The Gravity Model," MPRA Paper 45994, University Library of Munich, Germany.

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