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On labour standards and free trade

Author

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  • Michiel Kok
  • Richard Nahuis
  • Albert de Vaal

Abstract

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)

Suggested Citation

  • Michiel Kok & Richard Nahuis & Albert de Vaal, 2004. "On labour standards and free trade," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 13(2), pages 137-158.
  • Handle: RePEc:taf:jitecd:v:13:y:2004:i:2:p:137-158
    DOI: 10.1080/0963819042000218719
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    References listed on IDEAS

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    1. Bagwell,K. & Staiger,R.W., 2000. "GATT-think," Working papers 19, Wisconsin Madison - Social Systems.
    2. Kyle Bagwell & Robert W. Staiger, 2001. "Domestic Policies, National Sovereignty, and International Economic Institutions," The Quarterly Journal of Economics, Oxford University Press, vol. 116(2), pages 519-562.
    3. 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.
    4. 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, April.
    5. 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.
    6. 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:

    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," IHEID Working Papers 06-2007, Economics Section, The Graduate Institute of International Studies, revised Oct 2006.
    2. repec:pra:mprapa:39404 is not listed on IDEAS

    More about this item

    Keywords

    psychological externalities; coordination; trade intervention;

    JEL classification:

    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations

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