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On labour standards and free trade

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  • Mayke Kok
  • Richard Nahuis
  • A. de Vaal

Abstract

The authors investigate the effectiveness and efficiency of alternative measures to increase standards in low-income countries. They do this in a two-country framework where (a) trade and standards in low-income countries are negatively related, and (b) free trade is no longer optimal for the high-income country due to a negative psychological externality that low standards in low-income countries exert. We find that any uncoordinated, unilateral action by the high-income country to decrease the psychological externality is dominated by coordinated action; both with respect to the psychological externality as with respect to the welfare consequences for both countries. Since any increase in the standard in the low-income country decreases their welfare, co-ordination is not always a feasible solution. Only when incorporated in the framework of the WTO, co-ordination can be made incentive compatible and gives rise to a situation where free trade again works to the advantage of both countries.

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Bibliographic Info

Paper provided by CPB Netherlands Bureau for Economic Policy Analysis in its series CPB Discussion Paper with number 11.

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Date of creation: Aug 2002
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Handle: RePEc:cpb:discus:11

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  1. Kyle Bagwell & Robert W. Staiger, 1998. "The Simple Economics of Labor Standards and the GATT," NBER Working Papers 6604, National Bureau of Economic Research, Inc.
  2. Kyle Bagwell & Robert W. Staiger, 2002. "GATT-think," Discussion Papers, Columbia University, Department of Economics 0102-39, Columbia University, Department of Economics.
  3. Brown, D.K. & Dearorff, A.V. & Stern, R.M., 1993. "International Labor Standards and Trade: A Theoretical Analysis," Working Papers, Research Seminar in International Economics, University of Michigan 333, Research Seminar in International Economics, University of Michigan.
  4. Kyle Bagwell & Robert W. Staiger, 2001. "Domestic Policies, National Sovereignty, And International Economic Institutions," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 116(2), pages 519-562, May.
  5. Jim Rollo & L. Alan Winters, 2000. "Subsidiarity and Governance Challenges for the WTO: Environmental and Labour Standards," The World Economy, Wiley Blackwell, Wiley Blackwell, vol. 23(04), pages 561-576, 04.
  6. Bucovetsky, Sam & Wilson, John Douglas, 1991. "Tax competition with two tax instruments," Regional Science and Urban Economics, Elsevier, Elsevier, vol. 21(3), pages 333-350, November.
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Cited by:
  1. repec:pra:mprapa:39404 is not listed on IDEAS
  2. Pierre Kohler, 2006. "The Economics of Fair Trade: For Whose Benefit? An Investigation into the Limits of Fair Trade as a Development Tool and the Risk of Clean-Washing," IHEID Working Papers, Economics Section, The Graduate Institute of International Studies 06-2007, Economics Section, The Graduate Institute of International Studies, revised Oct 2006.

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