Foreign Direct Investment, Global Value Chains, and Labor Rights: No Race-to-the-Bottom?

Hyejoon Im and John McLaren

No 31363, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: In a stylized model of multinational firms choosing host locations for their global value chains, host-country governments choose the strength of collective-bargaining rights that allow their workers to receive a share of the resulting quasi-rents. Each government must trade off the direct benefit of stronger bargaining rights against both the effect of chasing multinationals away to rival countries and general-equilibrium effects of discouraging investment in the industry altogether. We find that an increase in globalization in the sense of lower transaction costs has no effect on equilibrium workers' rights, but adding more countries to the global trading system tends, in the limit, to weaken them. Thus, as a matter of theory, the effect of globalization on labor rights is ambiguous. Empirically, we find little evidence that globalization drives movements in labor rights in either direction.

JEL-codes: F16 F66 (search for similar items in EconPapers)
Date: 2023-06
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