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On labour standards and free trade

  • Michiel Kok
  • Richard Nahuis
  • Albert de Vaal

We 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 not 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. Coordination is also shown to be feasible and incentive compatible, provided that standards are objectively verifiable. (JEL D62, F13)

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File URL: http://www.tandfonline.com/doi/abs/10.1080/0963819042000218719
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Article provided by Taylor & Francis Journals in its journal The Journal of International Trade & Economic Development.

Volume (Year): 13 (2004)
Issue (Month): 2 ()
Pages: 137-158

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Handle: RePEc:taf:jitecd:v:13:y:2004:i:2:p:137-158
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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. 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.
  3. Kyle Bagwell & Robert W. Staiger, 1999. "Domestic Policies, National Sovereignty and International Economic Institutions," NBER Working Papers 7293, National Bureau of Economic Research, Inc.
  4. 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.
  5. Jim Rollo & L. Alan Winters, 2000. "Subsidiarity and Governance Challenges for the WTO: Environmental and Labour Standards," The World Economy, Wiley Blackwell, vol. 23(04), pages 561-576, 04.
  6. Bagwell,K. & Staiger,R.W., 2000. "GATT-think," Working papers 19, Wisconsin Madison - Social Systems.
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