The heterogeneous effects of trade agreements with labor provisions (Updated March 2021)

Do trade agreements with labor 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 labor intensity of goods traded? In this paper we implement a state-of-the-art structural gravity model with intra-national trade and allow for heterogeneous effects depending on the level of enforceability of labor provisions (weak vs. strong provisions), sector (labor vs. non-labor 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 labor 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 labor provisions, this is not the case if strong labor provisions are included in the agreement, and that such difference tend to be larger for labor-intensive goods.