On labour standards and free trade
The authors investigate the effectiveness and efficiency of alternative measures to increase standards in low-income countries. They do this 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.
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- Kyle Bagwell & Robert W. Staiger, 2002.
0102-39, Columbia University, Department of Economics.
- Kyle Bagwell & Robert W. Staiger, 2001.
"Domestic Policies, National Sovereignty, And International Economic Institutions,"
The Quarterly Journal of Economics,
MIT Press, vol. 116(2), pages 519-562, May.
- Kyle Bagwell & Robert W. Staiger, 1999. "Domestic Policies, National Sovereignty and International Economic Institutions," NBER Working Papers 7293, National Bureau of Economic Research, Inc.
- 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.
- Bagwell,K. & Staiger,R.W., 1998.
"The simple economics of labor standards and the Gatt,"
9, Wisconsin Madison - Social Systems.
- 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.
- 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.
- 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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