Progress 10/01/99 to 09/30/05
Outputs
This one-year extension of the project explores the interplay between trade competition, environmental performance, and the proliferation of eco-labeling in agriculture from an international perspective. There are three specific objectives. In terms of data acquisition: this project identifies a novel way of identifying the size of trade flows that have been impacted by eco-labeling initiatives depending on labeling and product characteristics, funding source (government/private) and existing trade and environmental measures. In terms of empirical assessment, this project proposed an empirical approach that traces out the relationship between observed time pattern of labeling initiatives to trade openness and macroeconomic variables. The dataset and empirical methodology together allow researchers and policy makers to ascertain whether there exist: i) a perceived (industry-level) green premium, ii) a causal relationship running from trade competition and environmental
performance to labeling initiatives and iii) a reverse causality running from labeling to trade and environmental performance accounting for the endogeneity of labeling. This research is communicated to the public in three ways. First, research findings were presented in a number of venues, including universities, national and international conferences. Second, research findings are published in professional journals in economics and agricultural economics. Finally, an international conference on social and environmental labeling was convened, in which international, environmental and labor economists, representatives from international organizations, and ground-level nonprofit organizations participated. An edited volume has been accepted for publication by Springer-Berlin. The volume brings together frontier research in the area of globalization and labeling, from the vantage points of environmental valuation techniques, cross-country econometric analysis, and micro-level
survey-based empirical research.
Impacts
In a number of high profile trade disputes, where trade sanctions were invoked in the name of safeguarding food safety and phytosanitary standards, eco-labeling has been advocated as a market-based alternative to sanctions. Existing studies typically rely on consumer surveys and other valuation techniques, and do not address national and producer gains from labeling initiatives contingent on macro-level characteristics and trade links. This study focuses on national level food industry green labeling initiatives worldwide over the last 30 years. The proliferation of national green labeling initiatives worldwide can be systematically traced back to country-specific factors: the stage of development of an economy; the world market share of the industry; existing commitment to environmental regulations, and the export orientation of the industry. In addition, this research finds strong interdependence, a race to the top, in that labeling initiative in one country can be
seen to trigger similar labeling initiatives in other trade partners. For food industry exporters, this research demonstrates that countries indeed behave as though it pays to certify food industry products as safe and environmentally friendly. From an income distribution perspective, this research shows that developing country producers can be disadvantaged because of lack of access to appropriate technologies, or reputation concerns. Meanwhile, individual producers in developed countries can also be disadvantaged as labeling segregates those who can and cannot afford to go through the certification process.
Publications
- Chau, N.H., Basu, A. and Grote, U. 2004. On Export Rivalry and the Greening of Agriculture: The Role of Eco-labels. Agricultural Economics 31(2-3): 135-1472.
- Chau, N.H., Basu, A. and Grote, U. 2003. The International Debate and Economic Consequences of Eco-labeling. In Trade and Environment -- Recent Controversies. H. Singer, N. Hatti and R. Tandon (eds.) Delhi, B.R.
- Chau, N.H., Basu, A. and Grote, U. 2002. Labor Standards, Social Labels and the Post-Uruguay Round of the WTO. In Ramesh Adhikari, Prema-Chandra Athukoralge (eds.) Developing Countries in the World Trading System -- The Uruguay Round and Beyond. The Asian Development Bank, Manila.
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Progress 01/01/04 to 12/31/04
Outputs
This project addresses two lacunae in the extant literature of international trade liberalization: 1. The need to quantitatively assess the efficiency and national welfare consequences of trade liberalization by accounting for the prevalence of market failures. These market failures may take the form of environmental externalities, short term inflexibility in the production process due to fixed costs and/or capacity constraints, and price/output uncertainties with incomplete insurance markets. 2. The need to ascertain how non-trade social and environmental standards adopted in developed and developing countries may nevertheless be subject to cost-cutting incentives unleashed by trade liberalization. 1. In a sequence of papers, this project developed distance and directional distance functions to ascertain the size of the national welfare cost of trade and non-trade distortions (such as environmental externalities). This index approach to trade policy evaluation
provides a simple tool for policy makers to: (i) decompose the sources of change in economic efficiency due to trade and environmental regulation shocks; (ii) trace the 'shadow prices' of good and bad outputs over time and (iii) compare the interplay between standard gains from trade to the potential costs of environmental degradation respectively in developed and developing countries. 2. This project covered two main types of non-trade concerns frequently entangled in trade liberalization efforts: (i) food and environmental standards, (ii) labor standards. In a sequence of papers, this project developed analytical frameworks of food standard and eco-labeling, and compiled a database of food industry green labeling initiatives world wide. The findings suggest that trade openness has a significant impact on the adoption of green labeling initiatives. It is shown that these non-trade responses can have opposing welfare implications for developed and developing countries, and producers
with and without access to technological know-how within countries. In terms of labor standards and globalization, this project considered openness both in the sense of product market and capital market liberalization. We find that the nature of the openness-labor standard link is nuanced and sensitive to the type of labor standard in question. Specifically, this project examined (i) ratification of labor standard conventions, (ii) employment and wages of union workers, (iii) the extent of child labor including the worst forms of child labor. In fact, one of the novelties of this project is its multidimensional approach to the definition of labor standard, and the associated data collection work particularly with respect to labor standard conventions and the worst forms of child labor. In all, 19 papers came out of this project, 16 are published in professional economics journal, and 3 recent manuscripts are under review. The findings of this project were presented in professional
meetings in the U.S. and abroad. Finally, a conference on green and social labeling initiatives is planned for March, 2005. We plan to publish an edited book volume at the end of this conference.
Impacts
The first objective responds to demands raised in the Uruguay Round, and evaluates economic performance based on joint considerations of trade measures, domestic support, and environmental concerns. Labor and environmental standards are key issues in upcoming trade talks, the second objective is a critical assessment of existing claims regarding trade and labor/environmental standards linkages. As a result of the groundwork done based on this project, the investigator and two coauthors are in the process of organizing a major conference, due to take place in March 17-19, 2005. The theme of the conference will be on food standards, labeling and international trade. Funding of the conference has been secured from GTZ, Germany. Participants and speakers include researchers from the United States and Europe, international organizations such as the World Bank and IFPRI, and representatives of organizations implementing social labeling initiatives. An edited book volume is
expected to be the outcome of the conference and negotiations are ongoing with Springer-Verlag. In all, 19 papers were completed during the course of this project, and all were accepted for publication in professional economics journal, except for 3 recently written manuscripts that are currently under review. This year, these research findings have been presented in multiple professional international trade meetings both in the U.S. and abroad.
Publications
- Basu, Arnab K. and Nancy H. Chau. 2004. Exploitation of Child Labor and the Dynamics of Debt Bondage, Journal of Economic Growth 9: 209-238. 2004.
- Basu, Arnab K. and Nancy H. Chau. 2004. A Risk-Based Rationale for Two-Way Capital Flows: Why do Capital Flights and Foreign Direct Investment Coexists? Forthcoming in International Review of Economics and Finance.
- Basu, Arnab K. and Nancy H. Chau. 2004. An Exploration into the Determinants of the Worst Forms of Child Labor: Is Redemption a Viable Option? Forthcoming in Slavery and Redemption, M. Bunzl and A. Appiah (eds), Princeton University Press.
- Basu, Arnab K., Nancy H. Chau and Ulrike Grote. 2004. Guaranteed Manufactured without Child Labor, Forthcoming in Review of Development Economics.
- Chau, Nancy H. and Ravi Kanbur. 2004. A Race to the Bottom from the Bottom: Labor Standards Competition Among Developing Countries, Forthcoming in Economica.
- Chau, Nancy H. and Ravi Kanbur. 2004. On Footloose Industries, Asymmetric Information and Wage Bargaining, CEPR Discussion Papers 4095.
- Abegaz, Berhanu, Arnab K. Basu and Nancy H. Chau. 2004. The Mortality, Fertility and Human Capital Nexus With and Without Openness, Mimeo.
- Chau, Nancy H., Rolf Fare and Shawna Grosskopf. 2004. Trade Restrictiveness and Pollution. (mimeo.) Cornell University.
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Progress 01/01/03 to 12/31/03
Outputs
This project addresses two lacunae in the existing literature of international trade liberalization. 1. The need to quantitatively assess the efficiency and national welfare consequences of multilateral trade liberalization by taking explicitly into account the prevalence of market failures. These market failures may take the form of, for instance environmental externalities as a byproduct of the production process, and price/output uncertainties with incomplete insurance markets 2. The need to ascertain how essentially non-trade social and environmental standards adopted in developed and developing countries may nevertheless be subject to cost-cutting incentives unleashed by trade liberalization. 1. To account for environmental externalities in the context of trade liberalization, Chau, Fare and Grosskopf (2003b) develop an indicator approach to capture how the interplay of environmental regulatory intensities and trade policies jointly determine the efficiency
consequences of trade liberalization. The index allows policy makers to: (i) decompose the sources of change in economic efficiency due to trade and environmental regulation shocks; (ii) trace the "shadow prices" of good and bad outputs over time and (iii) compare the interplay between standard gains from trade to the potential costs of environmental degradation respectively in developed and developing countries. Empirical implementation of based on trade and agricultural output data for the US and her major trading partners is work in progress. These findings will be presented in professional meetings for trade economists, and submitted to professional journals. 2a. The effects of trade liberalization on environmental standards are explored in the context of voluntary green labeling schemes in a panel of 66 developed and developing countries (Basu, Chau and Grote 2003 a, b, c). A theoretical framework is developed, and explores how year of adoption data of green labeling programs
worldwide can in fact be employed in empirical analyses of the size of green premia. Preliminary findings were presented in the IAAE (International Association for Agricultural Economists) meeting in Durban (South Africa), and took home the T.W. Schultz Award for young economist. 2b. Based on the latest labor standard convention of the International Labor Organization, the Worst Form of Child Labor Convention, Basu and Chau (2003d, e) critically examine the policy linkage between international trade and child labor work induced by indebtedness in the household. While empirical data on child labor in debt bondage are notoriously difficult to come by, one of the novelties of the study is that an index of child labor in debt bondage is created for more than 120 countries. The index is based on the Human Rights Report published by the US Dept.of State, and the World Development Indicators (2001) of the World Bank. The results of these studies are presented a number of professional
conferences such as the ILO/World Bank / UNICEF Conference on the Economics of Child labor. These findings are published in the World Bank Economic Review.
Impacts
The first objective responds to demands raised in the Uruguay Round, and evaluates economic performance based on joint considerations of trade measures, domestic support, and environmental concerns. Labor and environmental standards are key issues in upcoming trade talks, the second objective is a critical assessment of existing claims regarding trade and labor/environmental standards linkages. In the IAAE meeting held in Durban, South Africa (August 2003), the findings of this project on green agricultural production and trade competition were recognized in a panel session and won the T.W. Schultz award for young economist offered for the first time in the history of the conference. In addition, these results were presented in multiple professional trade meetings both in the U.S. and abroad (Germany, Greece and Hong Kong).
Publications
- Basu, Arnab K. and Nancy H. Chau. 2003a. Eco-labeling and Stages of Development. Review of Development Economics. 7 (2), 228-247.
- Basu, Arnab K., Nancy H. Chau and Ulrike Grote. 2003b. Labor Standards, Social Labels and the Post-Uruguay Round of the WTO. Proceedings of the Asian Development Bank Conference on Labor Standards, The Asian Development Bank, Manila. pp. 116 - 130.
- Basu, Arnab K., Nancy H. Chau and Ulrike Grote. 2003c. On Export Rivalry and the Greening of Agriculture: The Role of Eco-labels. Forthcoming in Agricultural Economics.
- Basu, Arnab K. and Nancy H. Chau. 2003d. Targeting Child Labor in Debt Bondage: Evidence, Theory and Policy.World Bank Economic Review 17: 255-281.
- Basu, Arnab K. and Nancy H. Chau. 2003e. Exploitation of Child Labor and the Dynamics of Debt Bondage. Revised and Resubmitted to Journal of Economic Growth.
- Bureau, J. Christophe, Nancy H. Chau, Rolf Fare and Shawna Grosskopf. 2003f. Economic Performance, Trade Restrictiveness and Efficiency. Review of Development Economics 7 (4) 527-542. (lead article).
- Chau, Nancy H., Rolf Fare and Shawna Grosskopf. 2003a. Trade Restrictiveness and Efficiency. International Economic Review 44: 1079-1095.
- Chau, Nancy H., Rolf Fare and Shawna Grosskopf. 2003b. Trade Restrictiveness and Pollution. (mimeo.) Cornell University.
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Progress 01/01/02 to 12/31/02
Outputs
A new approach to measuring the degree of trade restrictiveness has been developed. The new measure takes advantage of recent advances in efficiency measurements via a directional distance function approach. The new approach is based on a general equilibrium model of international trade. One of the contributions of the open economy version of the directional distance function is that the theoretical properties of the directional distance function indicate how the welfare effect of trade liberalization may be computed making use of trade volume and price data alone, instead of production and consumption data, which are more difficult to come by at more disaggregated levels (Chau 2002). Making use of agricultural trade data, computation of the welfare effects of trade liberalization for the US and her major trading partners is work in progress.These findings will be presented in professional meetings for trade economists, and submitted to professional journals.The
effects of trade liberalization on environmental standards are explored based on a dataset of national food-industry eco-labeling programs that is created by this project. Theoretical and empirical findings demonstrate for the first time the macroeconomic and trade-related underpinnings of the implementation of food-industry eco-labeling programs in 74 developed and developing countries. The empirical results show that international trade has a significant role in determining the incentives for countries to adopt eco-labeling programs in the food industry. In addition, peer effects are in play the probability of adopting national eco-labels depends on how many other export competing trade partners have already done so. These results thus shed light on the international determinants of eco-labeling directly. Indirectly, these results suggest countries and / producers behave as though a green premium for environmentally friendly product indeed exists, and play an important role in
determining their environmental performance. These results are summarized in Basu, Chau and Grote (2002a, 2002b), presented in professional international trade meetings and will be submitted to professional journals. Based on the latest labor standard convention initiated by the International Labor Organization the Worst Form of Child Labor Convention, Basu and Chau (2002a) and Basu and Chau (2002b) critically examine the policy linkage between international trade and child labor work induced by indebtedness in the household. While empirical data on child labor in debt bondage are notoriously difficult to come by, one of the novelties of the study is that an index of child labor in debt bondage is created for more than 120 countries. The index is based on the Human Rights Report published by the US Department of State, and the World Development Indicators (2001) of the World Bank. The results of these studies are presented a number of professional conferences such as the ILO/World
Bank / UNICEF Conference on the Economics of Child labor (2002). The manuscripts have been submitted to professional economics journals.
Impacts
The first objective responds to demands raised in the Uruguay Round, and evaluates economic performance based on joint considerations of trade measures and domestic support. Labor and environmental standards are key issues in upcoming trade talks. The second objective is a critical assessment of existing claims regarding trade and labor / environmental standards linkages.
Publications
- Chau,N.H. 2002. Duality and Trade Restrictiveness - A Directional Distance Function Approach. Dept. of Applied Economics and Management, Cornell University, Ithaca, New York.
- Basu,A.K., Chau,N.H., and Grote,U. 2002. On Export Rivalry and the Greening of Agriculture: The Role of Eco-Labels. Dept. of Applied Economics and Management, Cornell University, Ithaca, New York.
- Basu,A.K., Chau,N.H.,and Grote,U. 2002. Market Access Rivalry and Eco-labeling Standards: A Race to the Top or a Race to the Bottom? WP 2002-05, Dept. of Applied Economics and Management, Cornell University,Ithaca, New York.
- Basu,A.K. and Chau,N.H. 2002. Targeting Child Labor in Debt Bondage: Evidence, Theory and Policy. Dept. of Applied Economics and Mangement, Cornell University, Ithaca, New York.
- Basu,A.K. and Chau,N.H. 2002. Exploitation of Child Labor and the Dynamics of Debt Bondage. WP 2002-06, Dept. of Applied Economics and Management, Cornell University, Ithaca, New York.
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Progress 01/01/01 to 12/31/01
Outputs
This project has two objectives: I. To develop a new way to quantitatively assess the efficiency and national welfare consequences of multilateral trade liberalization accounting for second-best arguments of trade restrictions. II. To explore the competitiveness consequences of trade liberalization when countries bound by commitments to remove explicit trade barriers are nevertheless free to manipulate potentially trade distorting domestic support policies, labor standards and environmental regulations. Ia. A new approach to measuring the degree of trade barriers is currently being developed. The new approach extends the Trade Restrictiveness Quantity Index of Chau, Fare and Grosskopf, and takes advantage of recent advances in efficiency measurements via a ``directional distance function" approach. The results indicate that the directional distance function approach has the unique advantage of being capable of (i) measuring trade restrictiveness using only data on
trade flows, which are more readily available than production and consumption volumes, (ii) overcoming technical measurement issues involved with conventional distance function approach when the trade policy in question calls for a trade ban, for example, (iii) allowing for negative shadow prices associated with environmental bads. These findings will be presented in professional meetings for trade economists. Submission of these results to professional journals is expected by June 2002. Ib. A second line of research is directed towards assessing the role of direct payment on United States agriculture. United States major field crops policy has undergone significant changes since the 1985 Farm Bill, and the trend towards decoupling of the target price as finalized in the 1996 FAIR Act. The effect of domestic subsidy programs on world trade has become an important policy issue. In an unprecedented act, WTO disciplines on agricultural support include domestic programs that encourage
production. The framework explicitly recognizes that domestic support may delay exit, bias production incentives and cross-subsidize exports. An empirical model of the U.S. wheat sector is developed to illustrate these effects. Chau and DeGorter establishes and discusses these findings. The paper is submitted to a professional economics journal. II. The effects of trade liberalization on international labor standards is explored. The findings demonstrate the economic, political, trade-related and legal underpinnings of the ratification of the core labor conventions of the ILO. Empirical results show that for some Conventions, peer effects are in play -- the probability of adopting an international standard depends on how many other countries in a peer group have already adopted that standard. In addition, the results have important implications on the high profile debate on whether in addition to the ILO, international labor standards should formally become a part of WTO
negotiations.The results are discussed and summarized in Chau and Kanbur, and the manuscript is published in in the Brookings Trade Forum, 2001.
Impacts
The first objective responds to demands raised in the Uruguay Round, and evaluates economic performance based on joint considerations of trade measures, domestic support, and environmental concerns. Labor and environmental standards are key issues in upcoming trade talks, the second objective is a critical assessment of existing claims regarding trade and labor/environmental standards linkages.
Publications
- Chau, Nancy H. 2001. Duality and Trade Restrictiveness Measurement -- A Directional Distance Function Approach. (mimeo), Cornell University. Chau, Nancy H., Rolf Fare and Shawna Grosskopf. 2001. Trade Restrictiveness and Efficiency.(revised and resubmitted to International Economic Review).
- Chau, Nancy H. and Ravi Kanbur. 2001. The Adoption of International Labor Standard Conventions: Who, When and Why? Brookings Trade Forum, 2001: 113-156.
- Basu, Arnab K. and Nancy H. Chau. 2001. Inter-linked Markets, Bonded Child Labor and Economic Sanctions. (mimeo) Cornell University.
- Chau, Nancy H. and Harry de Gorter. 2001.Disentangling the Production and Export Consequences of Direct Farm Income Payments. Working paper Series # 2001-16, Department of Applied Economics and Management, Cornell University. (submitted)
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Progress 01/01/00 to 12/31/00
Outputs
This project has two objectives: I. To develop a new way to quantitatively assess the efficiency and national welfare consequences of multilateral trade liberalization accounting for second-best arguments of trade restrictions. II. To explore the competitiveness consequences of trade liberalization when countries bound by a commitment to remove explicit trade barriers are nevertheless free to manipulate potentially trade distorting domestic support policies, labor standards and environmental regulations. I. A Trade Restrictiveness Quantity Index that decomposes overall efficiency consequences of trade liberalization into a pure trade distortion and a domestic distortion component is developed. The index satisfies a number of desirable index number properties, and is operationalized using a panel of information on the agricultural sector of a set of European Community (EC) countries (1973-1989). Among our findings, of particular importance is that the degree of overall
distortion in members of the EC is significantly correlated with the domestic distortion index, rather than the trade distortion index, or other commonly used measures of trade openness. These findings are suggestive of the importance of accounting for the presence of second-best arguments of trade restrictions when evaluating the overall efficiency impact of international trade policies. These results have been presented and discussed in professional and academic conferences and seminars, and research papers are currently being revised in response to invited re-submissions in professional journals. II. The effects of trade liberalization on international labor and environmental standards are respectively explored. Research findings provide arguments against the following claims: trade barriers against the import of products made under lax labor standards encourage foreign countries to upgrade existing labor standards; insistence originating from consumer markets that products made
under lax labor standards be labeled as such eliminates the unfair competitive edge of foreign producers, and benefits businesses subject to strict labor standards; international trade liberalization necessarily induces a race to the bottom in labor standards. Regarding the environmental consequences of trade liberalization, research findings so far indicate: that trade openness and the feasibility of technology transfers determine the turning-point of an inverted U-shape economic growth and environment relationship. Whether trade liberalization delay the turning point of the growth and environment relationship depends on whether the cost of enforcing environmental standards fall disproportionately on emerging economies, and whether international trade agreements leave rooms for environmental policies to be deployed to reap terms of trade gains. Strategic use of environmental standards is shown to generate a tariff-like outcome, and negatively impact trade flows. Analytical and
simulation results on labor and environmental effects of trade liberalization were presented and discussed in professional and academic conferences. Research papers are submitted for publication in professional journals.
Impacts
The first objective responds to demands raised in the Uruguay Round, and evaluates economic performance based on joint considerations of trade measures, domestic support, and environmental concerns. Labor and environmental standards are key issues in upcoming trade talks, the second objective is a critical assessment of existing claims regarding trade and labor/environmental standards linkages.
Publications
- Bureau, J. Christophe, Nancy H. Chau, Rolf Fare and Shawna Grosskopf. 2000. Economic Performance, Trade Restrictiveness and Efficiency. (revised and resubmitted to Review of Development Economics). Chau, Nancy H., Rolf Fare and Shawna Grosskopf. 2000. Trade Restrictiveness and Efficiency. (revised and resubmitted to International Economic Review).
- Basu, Arnab K., Nancy H. Chau and Ulrike Grote. 2000. Labor Standards, Social Labels and the Post-Uruguay Round of the WTO. accepted subject to minor revisions in the Proceedings of the Asian Development Bank Conference on Labor Standards, The Asian Development Bank, Manila.
- Chau, Nancy H. and Ravi Kanbur. 2000. A Race to the Bottom from the Bottom: Labor Standards Competition Among Developing Countries.Working paper Series # 2000-16, Department of Applied Economics and Management, Cornell University.
- Basu, Arnab K. and Nancy H. Chau. 2000. Eco-labeling and Stages of Development.(submitted)
- Basu, Arnab K. and Nancy H. Chau. 2000. Market Access Rivalry and Eco-labeling Standards: A Race to the Top or a Race to the Bottom? (submitted).
- Basu, Arnab K., Nancy H. Chau and Ulrike Grote. 2000. Guaranteed Manufactured without Child Labor.Working paper Series # 2000-04, Department of Applied Economics and Management, Cornell University.
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