Global inequality raises questions about trade and social institutions. Do importing firms penalize or reward compliance with higher labor and environmental standards?
This study analyzes firm-level trade data from over 2,000 manufacturing establishments across 36 countries to understand how retailers respond to information on social standards.
Key Finding:
Contrary to the "race to the bottom" hypothesis, our analysis shows retail importers actively reward exporters who comply with social standards. Achieving compliance is associated with a statistically significant 4% [1%, 7%] average increase in annual purchasing by these retailers.
Driving Factor:
The effect appears particularly pronounced within the apparel industry—often targeted by anti-sweatshop campaigns—which suggests market dynamics can respond positively to social standards despite activist pressure.
This work offers important insights into how global trade patterns might be influenced not just by economic factors, but also by evolving social expectations and compliance information.
| Does Compliance Pay? Social Standards and Firm-level Trade was authored by Gregory Distelhorst and Richard Locke. It was published by Wiley in AJPS in 2018. |
