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The effect of employment protection legislation on international trade

Jayjit Roy ()

Economic Modelling, 2021, vol. 94, issue C, 221-234

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. Accordingly, utilizing data from roughly 30 countries across 21 manufacturing sectors over 2001–2009, we examine the impact of employment protection legislation on industry-level trade. Moreover, we attend to concerns over the endogeneity of labor regulations by employing an instrumental variables approach. By using disaggregated data along with the strategies aimed at addressing the endogeneity of labor regulations, we provide a novel contribution to the literature examining the trade and foreign investment implications of employment protection legislation. Overall, such legislation is witnessed to significantly encourage imports in relatively labor-intensive industries.

Keywords: Employment protection legislation; International trade; Endogeneity (search for similar items in EconPapers)
JEL-codes: C36 F16 J80 (search for similar items in EconPapers)
Date: 2021
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DOI: 10.1016/j.econmod.2020.10.004

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