Abstract
This paper assesses the impact of international trade and investment flows on the evolution of working conditions and labor rights in Asian and non-Asian countries in the late 20th and early 21st centuries. Labor conditions improved as globalization increased during this period. We find that real per capita income growth remains a powerful source of improved labor conditions, and the effect of trade on working conditions is mainly indirect through its impact on per capita gross domestic product (GDP). We find no evidence that eliminating trade barriers degrades labor conditions. We do find evidence that persistent differences in labor conditions between Asia and the rest of the world can be explained by differences in growth and international trade. Finally, we find no evidence that countries with poor labor conditions attract disproportionate flows of foreign direct investment (FDI). Instead, FDI flows seem mainly influenced by considerations of market size, investment risks, and the share of trade in GDP. After holding those influences constant, Asia receives a comparatively small share of world FDI inflows.
Highlights
Efforts to reduce barriers to international trade and investment frequently encounter claims that expanding international competition degrades working conditions and labor rights, in developing countries
This paper explores the relationships between labor conditions
We estimate random effects models in which labor conditions are a function of per-capita gross domestic product (GDP), instrumented measures of globalization, and a dummy variable for the Asia region to determine whether labor conditions in the region vary significantly from what one would expect based on economic fundamentals
Summary
Efforts to reduce barriers to international trade and investment frequently encounter claims that expanding international competition degrades working conditions and labor rights, in developing countries. Opponents of trade liberalization argue that international competition encourages jobs with low pay and poor nonmonetary conditions, such as long work hours and unsafe working environments. They claim further that free trade undermines the four “core” labor rights stressed by most international economic organizations: freedom of association, nondiscrimination, elimination of forced labor, and reduction of child labor. The final section presents our conclusions regarding the long-run adjustment of labor conditions to trade liberalization
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