Since 2000, Brazil, Russia, India and China, often called the BRICs countries, have seen record economic growth. In the last two decades, and particularly in the years following the Global Financial Crisis, companies based in the BRICs went on a spree of mergers and acquisitions. Foreign direct investment, or FDI for short, originating from these countries has increased by a factor of twenty and, by 2015, this represented over 30% of global FDI stocks.

Simultaneously, scholarly interest in this transformation has grown. Largely, this has focussed on human rights abuses in China, worsening inequality and reduced wages. Many fear a ‘race to the bottom’, which describes the process in which countries or firms deregulate in order to compete in a globalised market. However, these concerns do not necessarily reflect the reality of Global South–Global North investment.

In their recent paper, Wagner and Raess point out that the effects of FDI are context dependent, and therefore different in different BRICS countries. They reference a variety of studies that explore the effects of globalisation on labour standards with myriad results. Various projects have found a positive correlation, a negative correlation, or no correlation at all.

Subsequent research has sought to understand these differential effects by studying the problem from several angles. However, for Wagner and Raess, previous research has largely ignored the importance of where developing countries invest. It has also assumed that investment flows only from developed to developing countries.

The researchers wanted to break this trend by testing a new hypothesis: that investment from developing to developed countries can lead to an “investing up” effect in labour standards.

Using a new subnational database, which covers outward investment linkages and working conditions in Brazilian municipalities, Wagner and Raess explored whether direct investment in Europe has led to the introduction of better working conditions in Brazil.

Brazil is an ideal setting for this type of research as, until its recent socioeconomic downturn, it was one of the fastest growing and largest emerging economies in the world. It was also the first among the BRICs to become a significant outward investor. European countries continue to make up a significant percentage of Brazil’s overall outward investment, particularly attracting FDI in the form of mergers and acquisitions.

Wagner and Raess used municipality-level indicators of decent working conditions to conduct their research. To enable measurement and analysis, they focused on four facets of ‘decent work’. First, the rate of overworking, which is defined as working more than 48 hours in a week. Second, the rate of informal labour, meaning work outside the formal economy which often lacks legal protections, benefits, or regulation. Third, the share of permanent contracts, which minimizes the necessity for workers to straddle multiple jobs and allows them to plan for their future. Fourth, the rate of well-paying jobs, which they measure as the proportion of workers within each city, sector, and year whose wages are above the state median for that sector.

The researchers hypothesised that FDI from Brazil directed towards Europe would lead to better Brazilian labour standards, and highlighted two mechanisms through which this might happen.

First, they suggested an institutional and reputational mechanism. Companies from developing countries want to trade in Europe’s stable markets. However, they often struggle with credibility and legitimacy due to the poor institutional quality of their home countries.

As they become increasingly global, these companies increase their exposure to active, vocal stakeholder groups who scrutinize their behaviour and labour practices. In order to avoid reputational harm and ensure continued access to developed markets, they adopt policies to match host country standards.

One example of this is the influence of international union networks. By linking workers between locations in a multinational firm, unions within a network are able to share information, work in solidarity to pursue upgraded wages and working conditions, and bring attention to unequal treatment. This can lead to coordinated strikes, protests, and negotiations.

The second mechanism is socialisation to norms concerning worker relations. Companies from developing countries looking to invest in developed countries generally favour mergers and acquisitions, rather than building facilities and premises from scratch.

For Brazilian companies, this has meant deep integration within their host country, and frequent interactions with educational and social institutions. This level of integration has heavily exposed Brazilian companies to practices such as limitations on excessive hours, occupational health and safety regulations, good pay, and relatively generous benefit packages.

These novel experiences with relatively more humane treatment of worker demonstrates the positive impact of these standards. Not only do they improve quality of life for workers, but they can also increase productivity and human resources for the company.

Wagner and Raess’s study found that economic integration with high-standard developed countries can indeed act as a powerful mechanism for improvements in labour standards in developing countries. This has meant reduced overworking and informality rates, and increased shares of permanent contracts and well-paying jobs.

This suggests that the improvement of labour standards through globalization is not just driven by economic flows from the Global North to the Global South; demonstrable improvements in working conditions can also been driven by globalisation instigated by countries from the Global South.

In order to explore the mechanisms through which this has occurred, Wagner and Raess used web-scraping and text analysis of official worker and employer union documents. They found strong support for the institutional mechanism, though only circumstantial support for the role of socialization.

In an interesting follow-up study, published in International Interactions in 2024, the researchers compared the effects of investment from developing countries into Europe and the US. Europe has a high standard of labour rights protection when compared with the US. This study, under the title ‘The Social Europe’ effect, found that investing in Europe tended to result in labour rights improving in the investing developing country, whereas this effect did not occur for countries that invested in the US. These results suggest that strengthening or weakening labour rights in one country can have significant knock-on effects elsewhere. 

Overall, this research provides a fresh perspective on the role of globalisation in labour standards. The experience of Brazil suggests that globalisation is not simply a race to the bottom, and that certain types of FDI can, in fact, enhance the working conditions of those in developing countries. This reversal of the traditional relationship assumed between the global North and South provides novel opportunities for improving the lives of people across the world.