Labor compliance programs in developing countries and trade flows: Evidence from Better Work

• Published in: Economics letters 2023-07, Vol.228, p.111162, Article 111162
• Main Author: Robertson, Raymond
• Format: Article
• Language: English
• Subjects: Apparel; csdid; Gravity; Trade; Working conditions
• ISSN: 0165-1765; 1873-7374
• DOI: 10.1016/j.econlet.2023.111162

Exporting apparel supports economic development by creating formal-sector employment opportunities for workers (especially women) whose best alternative domestic employment opportunities are informal work or agriculture. Apparel production is also highly scrutinized due to concerns about poor working conditions. The question of whether programs to improve working conditions are associated with more or less apparel exports remains a central concern to both current and potential apparel-exporting developing-country governments. This study estimates the difference in exports following country-level initiation of the ILO-IFC’s Better Work program that currently operates in 10 apparel-exporting developing countries and has a well-established positive effect on working conditions in participating apparel-exporting factories. Since the treatment time for Better Work varies by country, we apply the Callaway–Sant’anna​ time-varying-treatment difference-in-difference event study to the gravity-trade literature. The event study approach illustrates differences in post-treatment from pre-treatment trends. The results show that apparel exports increase significantly following the initiation of the Better Work program relative to apparel-exporting countries that did not enter Better Work, but total trade does not. •Improving labor compliance could raise production costs, increase product demand, or improve factory performance.•The ILO/IFC Better Work program improves labor compliance with national labor law and international labor standards.•The staggered-treatment difference-in-difference estimates show rising apparel exports after countries enter Better Work.•Estimates support both demand and supply explanations.