Global Production and its Watchdogs: Firms and NGOs in the Regulatory Void
Final Report Abstract
The last three decades have been characterized by an unprecedented internationalization of the production process. Its regulation (e.g. regarding labor or the environment), however, remained mainly on the national level. Locating production in different countries therefore allows firms to benefit from massive cross-country differences in regulation and enforcement capacity: the “regulatory void”. This has set the stage for a novel, non-governmental player in the international economic policy arena which has previously received little attention in research on international trade: advocacy (or: watchdog) NGOs like Greenpeace, Rainforest Action Network or Amnesty International etc. We place this under-researched novel agent and its interaction with internationally active firms at center-stage of our analysis. The two key research questions which also structured this project are: 1. How do firms organize international production when the global regulatory void allows for substantial cost savings at the expense of workers and the environment, but when this may also induce consumer boycotts and advocacy NGO campaigns? We base our analysis on the established literature on the international organization of production. In one paper, we show empirically (and analyze theoretically) that sectors that can benefit more from “dirty” production abroad tend to cooperate more with independent suppliers: the “dirty work of globalization” along international value chains occurs at arm’s length rather than within the boundaries of the firm. In another paper, we consider the increasing demand for Corporate Social Responsibility investments along those international value chains. We construct a model with independent suppliers in a sequential international production process under incomplete contracts. We use Indian firm-level data to confirm the central prediction of the model: under-investments in CSR are most severe at the early stages of the value chain. 2. How do the export and global sourcing decisions of firms shape the geographical patterns of international NGO campaigns? We propose a model of global sourcing and international trade in which heterogeneous NGOs campaign against heterogeneous firms in response to infringements along their value chains. We find that campaigns are determined by a triadic gravity equation involving the country of the NGO, the country of the firm as well as the sourcing country. We use recently available data to estimate our triadic gravity equation at the NGO level and find strong support for this prediction as well as for other predictions specific to our modeling approach. Our results suggest that NGO activity tends to be local and is then internationalized through the increasing internationalization of global sourcing and trade.
Publications
-
“Globalisation and the economic geography of social activism”, VoxEU column.
Koenig, P., S. Krautheim, C. Löhnert & T. Verdier
-
"Firms under pressure: International trade and social activism,” Passauer Diskussionspapiere - Volkswirtschaftliche Reihe, No. V-87-22, Universität Passau, Wirtschaftswissenschaftliche Fakultät, Passau.
Löhnert, C.
-
The international organization of production in the regulatory void. Journal of International Economics, 137, 103572.
Herkenhoff, Philipp & Krautheim, Sebastian
-
“Plausible deniability: Integration vs. outsourcing with heterogeneous firms and unethical suppliers,” Passauer Diskussionspapiere - Volkswirtschaftliche Reihe, No. V-88-22, Universität Passau, Wirtschaftswissenschaftliche Fakultät, Passau
Löhnert, C.
-
“Three Essays on the Link between International Trade and Social Activism,” Doctoral Dissertation, Universität Passau, Passau
Löhnert, Claudius
-
Corporate Social Responsibility along the global value chain. Journal of Development Economics, 167, 103236.
Herkenhoff, Philipp; Krautheim, Sebastian; Semrau, Finn Ole & Steglich, Frauke
-
Local global watchdogs: Trade, sourcing and the internationalization of social activism. Journal of International Economics, 157, 104116.
Koenig, Pamina; Krautheim, Sebastian; Löhnert, Claudius & Verdier, Thierry
