Employment Protection Legislation and International Trade

Jayjit Roy

No 16-06, Working Papers from Department of Economics, Appalachian State University

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. However, identification of this causal e§ect is challenging due to the potential endogeneity of regulations attributable to crucial unobservables and measurement error. In this light, we use data from more than 30 countries across 21 manufacturing sectors over the period 2001-2009 and examine the impact of employment protection legislation (EPL) on industry-level trade. While a di§erence-in-di§erences type approach controls for several potential confounders, we also employ an instrumental variables (IV) strategy. Across all specifications, EPL is found to significantly encourage imports in relatively labor-intensive industries. Further, the IV estimates uncover a more pronounced e§ect and find concerns over endogeneity to be relevant. Key Words: Employment Protection Legislation, International Trade

JEL-codes: C36 F16 J80 (search for similar items in EconPapers)
Date: 2016
New Economics Papers: this item is included in nep-int and nep-pol
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