Working Paper: NBER ID: w26326
Authors: Margaret S. McMillan; Brian McCaig
Abstract: We study the effects of domestic trade liberalization on labor markets in Botswana. South Africa is the dominant member of the Southern Africa Customs Union. As such, when South Africa liberalized trade in the 1990s, this induced large and plausibly exogenous tariff reductions for the other customs union members, including Botswana. Using labor force surveys from Botswana spanning a decade, we find that trade liberalization did not affect the relative size of industries in terms of employment. However, trade liberalization had effects within industries. We find an increase in the prevalence of working in an informal firm and self-employment, but mixed evidence of effects on unemployment. Hours worked decreased in response to trade liberalization, partially driven by the movement of workers to informal firms. Despite large increases in aggregate income, trade liberalization is associated with a reduction in monthly income, but the results are imprecise. Our results also suggest that a positive export demand shock, the 2000 African Growth and Opportunities Act, is associated with a reduction in employment in informal firms in the clothing industry.
Keywords: Trade Liberalization; Labor Market; Botswana; Informal Employment; Self-Employment
JEL Codes: F1; F6; F63
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Tariff reductions (F13) | Employment distribution (D39) |
| Tariff reductions (F13) | Unemployment rates (J64) |
| Tariff reductions (F13) | Informal employment prevalence (J46) |
| Tariff reductions (F13) | Hours worked (J22) |
| Tariff reductions (F13) | Monthly income (J31) |
| Positive export demand shock (AGOA) (F69) | Employment in informal firms (clothing industry) (J46) |
| Tariff reductions (F13) | Movement of workers to informal firms (J46) |