On labour standards and free trade

Mayke Kok, Richard Nahuis and A. de Vaal

No 11, CPB Discussion Paper from CPB Netherlands Bureau for Economic Policy Analysis

Abstract: The authors investigate the effectiveness and efficiency of alternative measures to increase standards in low-income countries. The authors investigate the effectiveness and efficiency of alternative measures to increase standards in low-income countries. They do this in a two-country framework where (a) trade and standards in low-income countries are negatively related, and (b) free trade is no longer optimal for the high-income country due to a negative psychological externality that low standards in low-income countries exert. We find that any uncoordinated, unilateral action by the high-income country to decrease the psychological externality is dominated by coordinated action; both with respect to the psychological externality as with respect to the welfare consequences for both countries. Since any increase in the standard in the low-income country decreases their welfare, co-ordination is not always a feasible solution. Only when incorporated in the framework of the WTO, co-ordination can be made incentive compatible and gives rise to a situation where free trade again works to the advantage of both countries.

JEL-codes: D62 F13 (search for similar items in EconPapers)
Date: 2002-08
New Economics Papers: this item is included in nep-lab
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Related works:
Working Paper: On Labour Standards and Free Trade (2003)
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Persistent link: https://EconPapers.repec.org/RePEc:cpb:discus:11

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