Trade Performance and Labor Standards: A Dynamic Panel Data Approach

Abstract:     
What is the effect of more stringent labor standards on trade performance? Several recent papers have attempted to identify the partial effects of international labor standards on trade by using ILO labor standards ratifications as instruments in cross-sectional regressions. This paper contributes to the literature by using more direct measures of labor standards in a dynamic panel data model framework. The model covers up to 112 countries over the period 1980-2004, and it is robust to unobserved heterogeneity among countries as well as endogeneity among explanatory variables. The new measures of international labor standards used in the estimation correct for endogeneity and potential biases. In addition, I complement the analysis by including the quality of domestic institutions in influencing trade performance. The results suggest that better labor standards do not deteriorate the trade performance of a country, and that better institutions promote trade performance.

Number of Pages in PDF File: 34

Keywords: International Labor Standards, Trade, Institutions, Panel Data

JEL Classification: J8, F1, C3

working papers series