Steve DeLoach, associate professor of economics, presented a paper at the Western Economic Association International conference in Vancouver, Canada, June 30-July 3. The conference, attended by more than 1,000 economists, is one of the largest annual economics conferences in the world.
DeLoach presented results from a recent collaborative effort with colleague Tina Das, associate professor of economics. In the paper, “Trade, social policy and competitiveness in a model of incomplete information,” Das and DeLoach show that developing countries may actually have an incentive to raise domestic labor or environmental standards in order to give their firms a competitive edge in the global economy. This surprising result contradicts the widely-held belief that free trade inevitably results in a “race to the bottom” in terms of standards of production.
They show that, when a developing country suffers from competitive disadvantages due to a lack of reputation in the global marketplace, raising labor and environmental standards can improve the country’s reputation by driving out so-called “fly-by-nights” and encouraging efficient firms to increase the quality of the goods they produce. Even so, Das and DeLoach question whether the WTO should move towards the international harmonization of process and production methods.