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On labour standards and free trade

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Author Info
Michiel Kok
Richard Nahuis
Albert de Vaal

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Abstract

The authors investigate the effectiveness and efficiency of alternative measures to increase standards in low-income countries 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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Paper provided by CPB Netherlands Bureau for Economic Policy Analysis in its series CPB Discussion Papers with number 11.

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Handle: RePEc:cpb:discus:11

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Related research
Keywords: low-income countries; developing countries; psychological externalities; free trade; coordination; trade intervention;

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Find related papers by JEL classification:
D62 - Microeconomics - - Welfare Economics - - - Externalities
F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Jim Rollo & L. Alan Winters, 2000. "Subsidiarity and Governance Challenges for the WTO: Environmental and Labour Standards," The World Economy, Blackwell Publishing, vol. 23(04), pages 561-576, 04. [Downloadable!] (restricted)
  2. Bucovetsky, Sam & Wilson, John Douglas, 1991. "Tax competition with two tax instruments," Regional Science and Urban Economics, Elsevier, vol. 21(3), pages 333-350, November. [Downloadable!] (restricted)
  3. Kyle Bagwell & Robert W. Staiger, 2001. "Domestic Policies, National Sovereignty, And International Economic Institutions," The Quarterly Journal of Economics, MIT Press, vol. 116(2), pages 519-562, May. [Downloadable!] (restricted)
    Other versions:
  4. Kyle Bagwell & Robert W. Staiger, 2000. "GATT-Think," NBER Working Papers 8005, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
    • Kyle Bagwell & Robert W. Staiger, 2002. "GATT-think," Discussion Papers 0102-39, Columbia University, Department of Economics. [Downloadable!]
  5. repec:att:wimass:1919989 is not listed on IDEAS
  6. repec:att:wimass:1920019 is not listed on IDEAS
  7. Kyle Bagwell & Richard W. Staiger, 1998. "The Simple Economics of Labor Standards and the GATT," NBER Working Papers 6604, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  8. Brown, D.K. & Dearorff, A.V. & Stern, R.M., 1993. "International Labor Standards and Trade: A Theoretical Analysis," Working Papers 333, Research Seminar in International Economics, University of Michigan.
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. 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," HEI Working Papers 06-2007, Economics Section, The Graduate Institute of International Studies, revised Oct 2006. [Downloadable!]
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