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On Labour Standards and Free Trade

Author

Listed:
  • Kok, Michiel
  • Nahuis, Richard
  • de Vaal, Albert

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 no 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. Since any increase in the standard in the low-income country decreases their welfare, co-ordination is not always a feasible solution. Only when incorporated in the framework of the WTO, co-ordination can be made incentive compatible and gives rise to a situation where free trade again works to the advantage of both countries.

Suggested Citation

  • Kok, Michiel & Nahuis, Richard & de Vaal, Albert, 2003. "On Labour Standards and Free Trade," Conference papers 331082, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    • Handle: RePEc:ags:pugtwp:331082
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    2. 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.
    3. repec:pra:mprapa:39404 is not listed on IDEAS
    4. Stefan, Mann, 2012. "Does brain research provide a case for the transfer of public monies to the arts?," MPRA Paper 39410, University Library of Munich, Germany.

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    Keywords

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    JEL classification:

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

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