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Labor Clauses in Preferential Trade Agreements: How Do They Affect Informality?

Author

Listed:
  • Rihab, Bellakhal

    (University of Carthage, IHEC, Tunisia; L.R. MASE, ESSAI, University of Carthage, Tunisia)

  • Sonia Ben, Kheder

    (University of Jendouba, FSJEGJ, Tunisia; U.R. DEFI, ESSECT, University of Tunis, Tunisia)

  • Houda, Haffoudhi

    (L.R. MASE, ESSAI, University of Carthage, Tunisia; University of Carthage, FSEGN, Tunisia)

Abstract

We study the effect of the labor clauses (LCs) in preferential trade agreements (PTAs) on the informal economy. Using a sample comprising 112 countries for the period 2000-2017, we show that PTAs increase informality in low- and middle-income economies (LMIEs), regardless of whether LCs are included or not. This result is confirmed when accounting for the heterogeneity of parties to the agreement. Finally, PTAs with LCs whose implementation relies on deep cooperation mechanisms decrease informality in LMIEs when their partners are high-income economies. The policy implication is that LMIEs should foster the integration of LCs enforced through deep cooperation mechanisms.

Suggested Citation

  • Rihab, Bellakhal & Sonia Ben, Kheder & Houda, Haffoudhi, 2025. "Labor Clauses in Preferential Trade Agreements: How Do They Affect Informality?," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 40(2), pages 437-467.
    • Handle: RePEc:ris:integr:0951
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    Keywords

    Preferential Trade Agreements; Labor Clauses; Informal Economy;
    All these keywords.

    JEL classification:

    • E26 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Informal Economy; Underground Economy
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements

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