Revenue Substitution? How Foreign Aid Inflows Moderate the Effect of Bilateral Trade Pressures on Labor Rights

Sijeong Lim, Layna Mosley and Aseem Prakash

World Development, 2015, vol. 67, issue C, 295-309

Abstract: This paper investigates how foreign aid inflows moderate bilateral trade-based pressures on the exporting countries’ labor rights. Because aid provides additional resources to recipient governments, it reduces the importance aid-recipient governments attach to the preferences of their export partners. Consequently, aid inadvertently moderates the leverage exercised by importing countries on the governments of exporting, developing countries. Our analysis of a panel of 91 aid recipient countries for the period 1985–2002 lends support to the “revenue substitution” hypothesis. When aid levels are low, bilateral trade-based pressures are associated with improved labor rights. As aid levels rise, however, the effect loses significance.

Keywords: trade; foreign aid; race-to-the-bottom; labor rights; revenue substitution (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:wdevel:v:67:y:2015:i:c:p:295-309

DOI: 10.1016/j.worlddev.2014.10.025

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