Trade, Aid and Collective Labor Rights in the Developing World

Abstract

This paper investigates how foreign aid conditions the influence of bilateral trade in the diffusion of collective labor rights from developed to developing nations. Prior research suggests that developing countries ratchet up their laws pertaining to collective labor rights in response to pressures from firms, consumers and activist groups in the developed countries that purchase their exports. We posit that, although foreign aid can be used to improve human and labor rights in recipient nations via aid conditionality, foreign aid has an unintended and negative effect on the trade-related diffusion of labor laws. By providing resources to recipient governments, it reduces the trade-based political leverage of pro-labor actors located in importing countries. We hypothesize that as foreign aid increases, all else equal, developing governments are likely to be less concerned about the economic benefits of trade and, therefore, less responsive to trade- based pressures to improve collective labor rights.

We test our argument in a panel of 88 developing countries that have received Official Development Assistance (ODA) during the time period 1985-2002. We find that when foreign aid levels are low, bilateral trade-based pressures lead to improvement in collective labor rights. As aid levels rise, however, the bilateral-trade based effects are no longer significant. Importantly, our results hold even when we control for domestic factors such as levels of democracy, governing party ideology, and strength of labor that might affect governmental incentives towards enactment of labor laws. Our findings also hold when bilateral aid and multilateral aid are examined separately.