Does Compliance Pay? Firm-Level Trade and Social Institutions

48 Pages Posted: 15 Dec 2016 Last revised: 1 Jul 2017

Greg Distelhorst

Massachusetts Institute of Technology (MIT) - Sloan School of Management

Richard M. Locke

Brown University; Massachusetts Institute of Technology (MIT) - Department of Political Science

Date Written: June 30, 2017

Abstract

What is the relationship between trade and social institutions in the developing world? The research literature is conflicted: importing firms may demand that trading partners observe higher labor and environmental standards, or they may penalize higher standards that raise costs. This study uses new data on retailers and manufacturers to analyze how firm-level trade responds to information about social standards. Contrary to the "race to the bottom" hypothesis, it finds that importers reward exporters for complying with labor and environmental standards. In difference-in-differences estimates from over two thousand manufacturing establishments in 36 countries, achieving compliance is associated with a 4% [1%, 7%] average increase in annual orders. The effect is driven largely by the apparel industry—a longterm target of anti-sweatshop social movements—suggesting that activist campaigns can shape patterns of global trade.

Keywords: international political economy, trade, labor rights, environment, private regulation, global supply chains

Suggested Citation

Distelhorst, Greg and Locke, Richard M., Does Compliance Pay? Firm-Level Trade and Social Institutions (June 30, 2017). Watson Institute for International and Public Affairs Research Paper No. 2017-37; MIT Political Science Department Research Paper No. 2017-1; MIT Sloan Research Paper No. 5192-17. Available at SSRN: https://ssrn.com/abstract=2885455

Greg Distelhorst (Contact Author)

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

100 Main Street
E62-416
Cambridge, MA 02142
United States

HOME PAGE: http://www.gregdistelhorst.com

Richard M. Locke

Brown University ( email )

111 Thayer Street
Box 1970
Providence, RI 02912-1970
United States
(401) 863-3596 (Phone)

Massachusetts Institute of Technology (MIT) - Department of Political Science ( email )

77 Massachusetts Avenue
Cambridge, MA 02139
United States

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