Does Compliance Pay? Social Standards and Firm-level Trade

50 Pages Posted: 15 Dec 2016 Last revised: 14 Jan 2018

Greg Distelhorst

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

Richard Locke

Brown University

Date Written: January 10, 2018

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 retail importers reward exporters for complying with social 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 purchasing. 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: political economy, trade, labor, regulation, global supply chains

Suggested Citation

Distelhorst, Greg and Locke, Richard, Does Compliance Pay? Social Standards and Firm-level Trade (January 10, 2018). Watson Institute for International and Public Affairs Research Paper No. 2017-37; Forthcoming, American Journal of Political Science.; MIT Political Science Department Research Paper No. 2017-1; Watson Institute for International and Public Affairs Research Paper No. 2017-37; MIT Sloan Research Paper No. 5192-17. Available at SSRN: https://ssrn.com/abstract=2885455 or http://dx.doi.org/10.2139/ssrn.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 Locke

Brown University ( email )

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

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