Globalization, Credence Goods and International Civil Society
AbstractThe process of globalization is characterized by an impressive growth in global value chains, as well as the proliferation of non-governmental organizations (NGOs) interacting with production and sourcing decisions of multinational firms. In this paper, we present a simple North-South model of international trade allowing for the joint emergence of firm offshoring to South and NGO activism financed by donations from the civil society. In our model northern consumers care about unobservable “credence” characteristics of goods such as the environmental and social impact of production. The analysis highlights a complementarity between the growth of global value chains and the emergence of NGOs: for a range of trade costs potential NGO emergence allows firms to capture gains from globalization, which would otherwise be unattainable. We show that, somewhat paradoxically, when offshoring triggers NGO emergence, this can be at the expense of the consumers, who for a range of trade costs, would be better-off in a world without NGOs. In an extension we show that NGOs may also crowd out investment in regulatory capacities in low cost countries, as consumers in North have a willingness to fund NGOs providing a substitute for regulation in South.
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Bibliographic InfoPaper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 9232.
Date of creation: Nov 2012
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Find related papers by JEL classification:
- F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
- F61 - International Economics - - Economic Impacts of Globalization - - - Microeconomic Impacts
- L31 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Nonprofit Institutions; NGOs
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-12-22 (All new papers)
- NEP-ENV-2012-12-22 (Environmental Economics)
- NEP-INT-2012-12-22 (International Trade)
- NEP-SOC-2012-12-22 (Social Norms & Social Capital)
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- Gani Aldashev & Michela Limardi & Thierry Verdier, 2013. "Watchdogs of the Invisible Hand: NGO Monitoring, Corporate Social Responsibility, and Industry Equilibrium," Working Papers 1404, University of Namur, Department of Economics.
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