The heterogeneous effects of trade agreements with labour provisions

Abstract

AbstractDo trade agreements with labour provisions affect trade differently from those without such provisions? Are their effects heterogeneous with respect to the level of development of the countries involved and the labour intensity of goods traded? In this paper, we implement a state‐of‐the‐art structural gravity model with intranational (i.e. domestic) trade and allow for heterogeneous effects depending on the level of enforceability of labour provisions (weak vs. strong provisions), sector (labour vs. non‐labour‐intensive goods), members’ development level (North vs. South) and combinations of the three dimensions. We show that, overall, the trade effects of trade agreements with labour provisions are larger than those without. However, we also find that while exports from the South to the North display a significant increase after a signature of a trade agreements with no or weak labour provisions, this is not the case if strong labour provisions are included in the agreement, and that such differences tend to be larger for labour‐intensive goods.