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Resolving the Paradox of Social Standards and Export Competitiveness

  • Stephen B. DeLoach


    (Department of Economics, Elon University)

  • Jayoti Das


    (Department of Economics, Elon University)

Over the last decade there has been increasing international pressure on countries to raise social standards (i.e., production standards based on environmental and labor conditions). Currently, the World Trade Organization does not allow countries to impose minimum standards on imports based on environmental or labor standards because it is assumed to undermine competition. There is no consensus in the empirical literature, however, to support this claim. In fact, the evidence suggests that while stronger environmental standards hurt competitiveness, stronger labor standards do the opposite. This paper offers one possible explanation for this paradox. In a simple model of incomplete information, externally-imposed standards may either increase or decrease the competitiveness of infant firms from developing countries depending on the degree of complementarity between the standard and the production of high-quality goods.

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Paper provided by Elon University, Department of Economics in its series Working Papers with number 2008-03.

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Length: 25 pages
Date of creation: Feb 2008
Date of revision:
Handle: RePEc:elo:wpaper:2008-03
Contact details of provider: Postal: 2700 Campus Box Elon College, NC 27244-2010
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  1. Copeland,B.R. & Scott Taylor,M., 2003. "Trade, growth and the environment," Working papers 10, Wisconsin Madison - Social Systems.
  2. Jayoti Das & Stephen DeLoach, 2003. "Strategic trade policy in the presence of reputation spillovers," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 12(2), pages 101-116.
  3. Kyle Bagwell & Robert W. Staiger, 1988. "The Role Of Export Subsisies When Product Quality Is Unknown," NBER Working Papers 2584, National Bureau of Economic Research, Inc.
  4. Klaus Conrad, 2005. "Price Competition and Product Differentiation When Consumers Care for the Environment," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 31(1), pages 1-19, 05.
  5. Richard Chisik, 2002. "Reputational Comparative Advantage and Multinational Enterprise," Economic Inquiry, Western Economic Association International, vol. 40(4), pages 582-596, October.
  6. Mari Rege, 2000. "Strategic Policy and Environmental Quality: Helping the Domestic Industry to Provide Credible Information," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 15(3), pages 279-296, March.
  7. Shapiro, Carl, 1986. "Investment, Moral Hazard, and Occupational Licensing," Review of Economic Studies, Wiley Blackwell, vol. 53(5), pages 843-62, October.
  8. Kyle Bagwell, 1990. "Optimal Export Policy for a New-Product Monopoly," Discussion Papers 898, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  9. repec:tpr:qjecon:v:103:y:1988:i:4:p:767-87 is not listed on IDEAS
  10. Richard Chisik, 2010. "Export Industry Policy and Reputational Comparative Advantage," Working Papers 017, Ryerson University, Department of Economics.
  11. repec:tpr:qjecon:v:98:y:1983:i:4:p:659-79 is not listed on IDEAS
  12. Uri Ronnen, 1991. "Minimum Quality Standards, Fixed Costs, and Competition," RAND Journal of Economics, The RAND Corporation, vol. 22(4), pages 490-504, Winter.
  13. Wolfgang Mayer, 1984. "The Infant-Export Industry Argument," Canadian Journal of Economics, Canadian Economics Association, vol. 17(2), pages 249-69, May.
  14. Cleopatra DOUMBIA-HENRY & Eric GRAVEL, 2006. "Free trade agreements and labour rights: Recent developments," International Labour Review, International Labour Organization, vol. 145(3), pages 185-206, 09.
  15. Gene M. Grossman & Henrik Horn, 1987. "Infant-Industry Protection Reconsidered: The Case of Informational Barriers to Entry," NBER Working Papers 2159, National Bureau of Economic Research, Inc.
  16. Eugene Beaulieu & James Gaisford, 2002. "Labour and Environmental Standards: The 'Lemons Problem' in International Trade Policy," The World Economy, Wiley Blackwell, vol. 25(1), pages 59-78, 01.
  17. David Kucera & Ritash Sarna, 2006. "Trade Union Rights, Democracy, and Exports: a Gravity Model Approach," Review of International Economics, Wiley Blackwell, vol. 14(5), pages 859-882, November.
  18. Leland, Hayne E, 1979. "Quacks, Lemons, and Licensing: A Theory of Minimum Quality Standards," Journal of Political Economy, University of Chicago Press, vol. 87(6), pages 1328-46, December.
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