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Political regimes, trade, and labor policies in developing countries

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  • Banerji, Arup
  • Ghanem, Hafez
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    Abstract

    What, if any, is the link between labor market policies that benefit insiders - for example, regulations guaranteeing high minimum wages and strict job security - and political regimes. Is it true that in a democracy outsiders vote and impose limits on what insiders can achieve, whereas in a dictatorship the government need worry only about insiders who have real power? Or are democratic governments more likely to succumb to trade union pressure and use labor policies to give them special privileges? To test these competing hypotheses, the authors designed a two-sector political economy model that demonstrates that labor market distortions depend directly on the trade regime: the more open the trade regime, the fewer distortions in the labor market. They use cross-country regressions to test the relationship between political and civil liberties and trade and labor policies. Using data for 90 developing countries, they apply existing indices of openness and political freedom and two different constructed measures of labor market distortion. Their conclusions, based on the regression results: authoritarian systems that repress labor are more likely than democratic systems to adopt inefficient labor policies inimical to development.

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    Bibliographic Info

    Paper provided by The World Bank in its series Policy Research Working Paper Series with number 1521.

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    Date of creation: 31 Oct 1995
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    Handle: RePEc:wbk:wbrwps:1521

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    Related research

    Keywords: Economic Theory&Research; Environmental Economics&Policies; Labor Policies; Health Economics&Finance; Banks&Banking Reform; Environmental Economics&Policies; Health Economics&Finance; Banks&Banking Reform; Labor Standards; Economic Theory&Research;

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    1. Barro, R.J., 1989. "Economic Growth In A Cross Section Of Countries," RCER Working Papers 201, University of Rochester - Center for Economic Research (RCER).
    2. Alesina, Alberto & Perotti, Roberto, 1994. "The Political Economy of Growth: A Critical Survey of the Recent Literature," World Bank Economic Review, World Bank Group, vol. 8(3), pages 351-71, September.
    3. Grossman, Gene M & Helpman, Elhanan, 1994. "Protection for Sale," American Economic Review, American Economic Association, vol. 84(4), pages 833-50, September.
    4. Pencavel, John, 1995. "The role of labor unions in fostering economic development," Policy Research Working Paper Series 1469, The World Bank.
    5. Ann Harrison, 1995. "Openness and Growth: A Time-Series, Cross-Country Analysis for Developing Countries," NBER Working Papers 5221, National Bureau of Economic Research, Inc.
    6. Ozler, Sule & Rodrik, Dani, 1992. "External shocks, politics and private investment : Some theory and empirical evidence," Journal of Development Economics, Elsevier, vol. 39(1), pages 141-162, July.
    7. Azam, Jean-Paul, 1994. " Democracy and Development: A Theoretical Framework," Public Choice, Springer, vol. 80(3-4), pages 293-305, September.
    8. Pritchett, Lant, 1991. "Measuring outward orientation in developing countries : can it be done?," Policy Research Working Paper Series 566, The World Bank.
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