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Employment Protection Legislation and International Trade

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  • Jayjit Roy

Abstract

Analyzing the impact of domestic labor regulations on international trade is relevant, in part, because (i) trade negotiations may increasingly constrain countries’ ability to implement trade policies and (ii) concerns over international competition driving countries towards a ‘race to the bottom’ in labor standards are rampant. However, identification of this causal e§ect is challenging due to the potential endogeneity of regulations attributable to crucial unobservables and measurement error. In this light, we use data from more than 30 countries across 21 manufacturing sectors over the period 2001-2009 and examine the impact of employment protection legislation (EPL) on industry-level trade. While a di§erence-in-di§erences type approach controls for several potential confounders, we also employ an instrumental variables (IV) strategy. Across all specifications, EPL is found to significantly encourage imports in relatively labor-intensive industries. Further, the IV estimates uncover a more pronounced e§ect and find concerns over endogeneity to be relevant. Key Words: Employment Protection Legislation, International Trade

Suggested Citation

  • Jayjit Roy, 2016. "Employment Protection Legislation and International Trade," Working Papers 16-06, Department of Economics, Appalachian State University.
    • Handle: RePEc:apl:wpaper:16-06
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    File URL: http://econ.appstate.edu/RePEc/pdf/wp1606.pdf
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    References listed on IDEAS

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    JEL classification:

    • C36 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Instrumental Variables (IV) Estimation
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • J80 - Labor and Demographic Economics - - Labor Standards - - - General

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