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Foreign Direct Investment, Global Value Chains, and Labor Rights: No Race-to-the-Bottom?

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Listed:
  • Hyejoon Im
  • John McLaren

Abstract

In a stylized model of multinational firms choosing host locations for their global value chains, host-country governments choose the strength of collective-bargaining rights that allow their workers to receive a share of the resulting quasi-rents. Each government must trade off the direct benefit of stronger bargaining rights against both the effect of chasing multinationals away to rival countries and general-equilibrium effects of discouraging investment in the industry altogether. We find that an increase in globalization in the sense of lower transaction costs has no effect on equilibrium workers' rights, but adding more countries to the global trading system tends, in the limit, to weaken them. Thus, as a matter of theory, the effect of globalization on labor rights is ambiguous. Empirically, we find little evidence that globalization drives movements in labor rights in either direction.

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  • Hyejoon Im & John McLaren, 2023. "Foreign Direct Investment, Global Value Chains, and Labor Rights: No Race-to-the-Bottom?," NBER Working Papers 31363, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:31363
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    JEL classification:

    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • F66 - International Economics - - Economic Impacts of Globalization - - - Labor

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