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Social dumping and relocation: is there a case for imposing a social clause?

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  • Cordella, Tito
  • Grilo, Isabel

Abstract

Public opinion in Europe seems worried about the effect of lower-wage country competition. In both newspaper articles and in policy debates, the term ‘social dumping’ is becoming more and more popular. In many countries, trade unions worried by the effect of what they call ‘unfair competition’, propose the adoption of a ‘social clause’ protecting domestic markets from commodities produced in countries were minimal labour conditions are not met. We analyse the effects of such a policy in the framework of a vertically differentiated Bertrand duopoly. In particular, we study the effects of such a policy on the relocation decisions of the firms and perform a welfare analysis. The welfare analysis takes explicitly into account the unemployment situation in the domestic country by accounting for the workers’ welfare losses due to job reductions following the relocation of firms. We characterize the optimal social clause policy both under domestic welfare maximization and from an efficiency point of view. We show that, on domestic welfare grounds, the case for a social clause policy is weaker the higher the domestic wage and the lower the foreign wage.
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Suggested Citation

  • Cordella, Tito & Grilo, Isabel, 2001. "Social dumping and relocation: is there a case for imposing a social clause?," Regional Science and Urban Economics, Elsevier, vol. 31(6), pages 643-668, November.
    • Handle: RePEc:eee:regeco:v:31:y:2001:i:6:p:643-668
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    References listed on IDEAS

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    1. Ms. Isabel Grilo & Mr. Tito Cordella, 1998. "“Globalization” and Relocation in a Vertically Differentiated Industry," IMF Working Papers 1998/048, International Monetary Fund.
    2. Motta, Massimo & Thisse, Jacques-Francois, 1994. "Does environmental dumping lead to delocation?," European Economic Review, Elsevier, vol. 38(3-4), pages 563-576, April.
    3. repec:bla:reviec:v:8:y:2000:i:2:p:360-71 is not listed on IDEAS
    4. Boccard, Nicolas & van Ypersele, Tanguy & Wunsch, Pierre, 2003. "Comparative advantage and social protection," European Journal of Political Economy, Elsevier, vol. 19(2), pages 247-264, June.
    5. Brander, James A. & Spencer, Barbara J., 1987. "Foreign direct investment with unemployment and endogenous taxes and tariffs," Journal of International Economics, Elsevier, vol. 22(3-4), pages 257-279, May.
    6. Mussa, Michael & Rosen, Sherwin, 1978. "Monopoly and product quality," Journal of Economic Theory, Elsevier, vol. 18(2), pages 301-317, August.
    7. DREZE, Jacques H. & SNEESSENS, Henri, 1994. "Technical Development, Competition from Low-Wage Economies and Low-Skilled Unemployment," LIDAM Discussion Papers CORE 1994036, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    8. Drèze, J. H. & Sneessens, H., 1994. "Technical development, competition from low-wage economies and low-skilled unemployment (With a comment by H. Flam)," LIDAM Reprints CORE 1122, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
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    Cited by:

    1. Willem Molle, 2002. "Globalization, Regionalism and Labour Markets: Should We Recast the Foundations of the EU Regime in Matters of Regional (Rural and Urban) Development?," Regional Studies, Taylor & Francis Journals, vol. 36(2), pages 161-172.
    2. Jesús F. Lampón & Pablo Cabanelas-Lorenzo & Santiago Lago-Peñas, 2013. "Why firms relocate their production overseas? The answer lies inside: corporate, logistic and technological determinants," Working Papers 2013/3, Institut d'Economia de Barcelona (IEB).
    3. Hurtado Inmaculada & Argerey Patricia, 2008. "Social Dumping: The Debate on a Multilateral Social Clause," Global Economy Journal, De Gruyter, vol. 8(1), pages 1-17, February.
    4. Simon Pahle, 2015. "Bringing Workers’ Rights Back In? Propositions towards a Labour–Trade Linkage for the Global South," Development and Change, International Institute of Social Studies, vol. 46(1), pages 121-147, January.
    5. Lampón, Jesús F. & Cabanelas, Pablo & Carballo-Cruz, Francisco, 2017. "A model for international production relocation: Multinationals' operational flexibility and requirements at production plant level," Journal of Business Research, Elsevier, vol. 77(C), pages 95-101.
    6. Collie, D. & Vandenbussche, H., 1999. "Trade, FDI, and unions," Discussion Paper 1999-42, Tilburg University, Center for Economic Research.
    7. Jesús F. Lampón & Pablo Cabanelas-Lorenzo & Santiago Lago-Peñas, 2013. "Why firms relocate their production overseas? The answer lies inside: corporate, logistic and technological determinants," Working Papers 2013/3, Institut d'Economia de Barcelona (IEB).
    8. Naoto Jinji, 2012. "Factor market monopsony and international duopoly," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 21(2), pages 271-286, February.

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    More about this item

    JEL classification:

    • F02 - International Economics - - General - - - International Economic Order and Integration
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • J60 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - General
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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