IDEAS home Printed from https://ideas.repec.org/a/eee/asieco/v90y2024ics1049007823000969.html
   My bibliography  Save this article

Trade and employment in the formal and informal sectors: A natural experiment from Cambodia

Author

Listed:
  • Tanaka, Kiyoyasu
  • Greaney, Theresa M.

Abstract

How does trade affect formal and informal jobs in developing economies? This paper estimates the impact of exports on employment in the formal and informal sectors by exploiting the European Union (EU)’s reform in rules of origin for duty-free market access, which produced a large positive shock to Cambodia’s garment exports to the EU. We use nationally representative datasets on formally registered and unregistered establishments in Cambodia for 2009, 2011, and 2014. The results show that the export shock caused large employment growth in formal garment establishments, but had little effect on employment in informal garment establishments. While the positive effect is pronounced for incumbent establishments and female workers, our estimates are not magnified by transitions between formal and informal status in the garment industry. Thus, trade promotes employment disproportionately in the formal sector.

Suggested Citation

  • Tanaka, Kiyoyasu & Greaney, Theresa M., 2024. "Trade and employment in the formal and informal sectors: A natural experiment from Cambodia," Journal of Asian Economics, Elsevier, vol. 90(C).
    • Handle: RePEc:eee:asieco:v:90:y:2024:i:c:s1049007823000969
    DOI: 10.1016/j.asieco.2023.101676
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S1049007823000969
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.asieco.2023.101676?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. José Anson & Olivier Cadot & Antoni Estevadeordal & Jaime de Melo & Akiko Suwa‐Eisenmann & Bolormaa Tumurchudur, 2005. "Rules of Origin in North–South Preferential Trading Arrangements with an Application to NAFTA," Review of International Economics, Wiley Blackwell, vol. 13(3), pages 501-517, August.
    2. Paola Conconi & Manuel García-Santana & Laura Puccio & Roberto Venturini, 2018. "From Final Goods to Inputs: The Protectionist Effect of Rules of Origin," American Economic Review, American Economic Association, vol. 108(8), pages 2335-2365, August.
    3. Yamagata, Tatsufumi, 2006. "The Garment Industry in Cambodia: Its Role in Poverty Reduction through Export-Oriented Development," IDE Discussion Papers 62, Institute of Developing Economies, Japan External Trade Organization(JETRO).
    4. Rafael La Porta & Andrei Shleifer, 2014. "Informality and Development," Journal of Economic Perspectives, American Economic Association, vol. 28(3), pages 109-126, Summer.
    5. Sarra Ben Yahmed & Pamela Bombarda, 2020. "Gender, Informal Employment and Trade Liberalization in Mexico," The World Bank Economic Review, World Bank, vol. 34(2), pages 259-283.
    6. Kiyoyasu Tanaka & Yoshihiro Hashiguchi, 2020. "Agglomeration economies in the formal and informal sectors: a Bayesian spatial approach‡," Journal of Economic Geography, Oxford University Press, vol. 20(1), pages 37-66.
    7. Marc J. Melitz, 2003. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," Econometrica, Econometric Society, vol. 71(6), pages 1695-1725, November.
    8. Benedikt Heid & Mario Larch & Alejandro Riaño, 2013. "The Rise of the Maquiladoras: A M ixed Blessing," Review of Development Economics, Wiley Blackwell, vol. 17(2), pages 252-267, May.
    9. A. Colin Cameron & Jonah B. Gelbach & Douglas L. Miller, 2011. "Robust Inference With Multiway Clustering," Journal of Business & Economic Statistics, Taylor & Francis Journals, vol. 29(2), pages 238-249, April.
    10. Paz, Lourenço S., 2014. "The impacts of trade liberalization on informal labor markets: A theoretical and empirical evaluation of the Brazilian case," Journal of International Economics, Elsevier, vol. 92(2), pages 330-348.
    11. Dennis Becker, 2018. "Heterogeneous firms and informality: the effects of trade liberalization on labour markets," Oxford Economic Papers, Oxford University Press, vol. 70(1), pages 47-72.
    12. Asha Sundaram, 2015. "The Impact of Trade Liberalization on Micro Enterprises: Do Banks Matter? Evidence from Indian Manufacturing," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 77(6), pages 832-853, December.
    13. Bosch, Mariano & Goñi-Pacchioni, Edwin & Maloney, William, 2012. "Trade liberalization, labor reforms and formal–informal employment dynamics," Labour Economics, Elsevier, vol. 19(5), pages 653-667.
    14. Hartmut Egger & Udo Kreickemeier, 2017. "Firm Heterogeneity and the Labor Market Effects of Trade Liberalization," World Scientific Book Chapters, in: International Trade and Labor Markets Welfare, Inequality and Unemployment, chapter 10, pages 265-306, World Scientific Publishing Co. Pte. Ltd..
    15. Isis Gaddis & Janneke Pieters, 2017. "The Gendered Labor Market Impacts of Trade Liberalization: Evidence from Brazil," Journal of Human Resources, University of Wisconsin Press, vol. 52(2), pages 457-490.
    16. Standing, Guy, 1999. "Global Feminization Through Flexible Labor: A Theme Revisited," World Development, Elsevier, vol. 27(3), pages 583-602, March.
    17. Koujianou Goldberg, Pinelopi & Pavcnik, Nina, 2003. "The response of the informal sector to trade liberalization," Journal of Development Economics, Elsevier, vol. 72(2), pages 463-496, December.
    18. Benjamin Aleman-Castilla, 2006. "The Effect of Trade Liberalization on Informality and Wages: Evidence from Mexico," CEP Discussion Papers dp0763, Centre for Economic Performance, LSE.
    19. Pablo Acosta & Gabriel Montes-Rojas, 2014. "Informal Jobs and Trade Liberalisation in Argentina," Journal of Development Studies, Taylor & Francis Journals, vol. 50(8), pages 1104-1118, August.
    20. Yoko Asuyama & Dalin Chhun & Takahiro Fukunishi & Seiha Neou & Tatsufumi Yamagata, 2013. "Firm dynamics in the Cambodian garment industry: firm turnover, productivity growth and wage profile under trade liberalization," Journal of the Asia Pacific Economy, Taylor & Francis Journals, vol. 18(1), pages 51-70.
    21. Erten, Bilge & Leight, Jessica & Tregenna, Fiona, 2019. "Trade liberalization and local labor market adjustment in South Africa," Journal of International Economics, Elsevier, vol. 118(C), pages 448-467.
    22. Emanuel Ornelas, 2016. "Special and Differential Treatment for Developing Countries," CESifo Working Paper Series 5823, CESifo.
    23. Brian McCaig & Nina Pavcnik, 2018. "Export Markets and Labor Allocation in a Low-Income Country," American Economic Review, American Economic Association, vol. 108(7), pages 1899-1941, July.
    24. Pavel Chakraborty & Rahul Singh & Vidhya Soundararajan, 2021. "Import Competition, Formalization, and the Role of Contract Labor," Working Papers 332157179, Lancaster University Management School, Economics Department.
    25. Pinelopi Koujianou Goldberg & Nina Pavcnik, 2007. "Distributional Effects of Globalization in Developing Countries," Journal of Economic Literature, American Economic Association, vol. 45(1), pages 39-82, March.
    26. Patricia Augier & Michael Gasiorek & Charles Lai‐Tong, 2004. "Rules of Origin and the EU‐Med Partnership: The Case of Textiles," The World Economy, Wiley Blackwell, vol. 27(9), pages 1449-1473, September.
    27. Arias, Javier & Artuc, Erhan & Lederman, Daniel & Rojas, Diego, 2018. "Trade, informal employment and labor adjustment costs," Journal of Development Economics, Elsevier, vol. 133(C), pages 396-414.
    28. Sheba Tejani & William Milberg, 2016. "Global Defeminization? Industrial Upgrading and Manufacturing Employment in Developing Countries," Feminist Economics, Taylor & Francis Journals, vol. 22(2), pages 24-54, April.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Kiyoyasu Tanaka, 2021. "The European Union's reform in rules of origin and international trade: Evidence from Cambodia," The World Economy, Wiley Blackwell, vol. 44(10), pages 3025-3050, October.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Kelishomi, Ali Moghaddasi & Nisticò, Roberto, 2024. "Economic sanctions and informal employment," Labour Economics, Elsevier, vol. 89(C).
    2. Sarra Ben Yahmed & Pamela Bombarda, 2020. "Gender, Informal Employment and Trade Liberalization in Mexico," The World Bank Economic Review, World Bank, vol. 34(2), pages 259-283.
    3. Langot, François & Merola, Rossana & Oh, Samil, 2022. "Can taxes help ensure a fair globalization?," International Economics, Elsevier, vol. 171(C), pages 191-213.
    4. L. Alan Winters & Antonio Martuscelli, 2014. "Trade Liberalization and Poverty: What Have We Learned in a Decade?," Annual Review of Resource Economics, Annual Reviews, vol. 6(1), pages 493-512, October.
    5. Margaret S. McMillan & Brian McCaig, 2019. "Trade Liberalization and Labor Market Adjustment in Botswana," NBER Working Papers 26326, National Bureau of Economic Research, Inc.
    6. HAYAKAWA,Kazunobu & KEOLA, Souknilanh & SUDSAWASD, Sasatra & YAMANOUCHI, Kenta, 2024. "International Bridges and Informality," IDE Discussion Papers 914, Institute of Developing Economies, Japan External Trade Organization(JETRO).
    7. Erten, Bilge & Leight, Jessica & Tregenna, Fiona, 2019. "Trade liberalization and local labor market adjustment in South Africa," Journal of International Economics, Elsevier, vol. 118(C), pages 448-467.
    8. César, Andrés & Falcone, Guillermo & Gasparini, Leonardo, 2021. "Costs and benefits of trade shocks: Evidence from Chilean local labor markets," Labour Economics, Elsevier, vol. 73(C).
    9. Dix-Carneiro, Rafael & Kovak, Brian K., 2019. "Margins of labor market adjustment to trade," Journal of International Economics, Elsevier, vol. 117(C), pages 125-142.
    10. Dix-Carneiro, Rafael & Kovak, Brian K., 2023. "Globalization and Inequality in Latin America," IZA Discussion Papers 16363, Institute of Labor Economics (IZA).
    11. Wang, Feicheng & Liang, Zhe & Lehmann, Hartmut, 2021. "Import competition and informal employment: Empirical evidence from China," University of Göttingen Working Papers in Economics 426, University of Goettingen, Department of Economics.
    12. Dennis Becker, 2018. "Heterogeneous firms and informality: the effects of trade liberalization on labour markets," Oxford Economic Papers, Oxford University Press, vol. 70(1), pages 47-72.
    13. Becker, Dennis, 2014. "Heterogeneous Firms and Informality: The Effects of Trade Liberalization on Labor Markets," Working Papers 180124, Cornell University, Department of Applied Economics and Management.
    14. Guillermo Cruces & Guido Porto & Mariana Viollaz, 2018. "Trade liberalization and informality in Argentina: exploring the adjustment mechanisms," Latin American Economic Review, Springer;Centro de Investigaciòn y Docencia Económica (CIDE), vol. 27(1), pages 1-29, December.
    15. Feicheng Wang & Zhe Liang & Hartmut Lehmann, 2021. "Import Competition and Informal Employment: Empirical Evidence from China," Working Papers 392, Leibniz Institut für Ost- und Südosteuropaforschung (Institute for East and Southeast European Studies).
    16. Paz, Lourenço S., 2014. "The impacts of trade liberalization on informal labor markets: A theoretical and empirical evaluation of the Brazilian case," Journal of International Economics, Elsevier, vol. 92(2), pages 330-348.
    17. Mansour, Hani & Medina, Pamela & Velásquez, Andrea, 2022. "Import competition and gender differences in labor reallocation," Labour Economics, Elsevier, vol. 76(C).
    18. Brian McCaig & Nina Pavcnik, 2018. "Export Markets and Labor Allocation in a Low-Income Country," American Economic Review, American Economic Association, vol. 108(7), pages 1899-1941, July.
    19. Elena Perra, & Sanfilippo, Marco & Sundaram, Asha, 2022. "Roads, Competition, and the Informal Sector," Department of Economics and Statistics Cognetti de Martiis. Working Papers 202221, University of Turin.
    20. Heid, Benedikt, 2014. "Preferential Trade Agreements, Unemployment, and the Informal Sector," VfS Annual Conference 2014 (Hamburg): Evidence-based Economic Policy 100376, Verein für Socialpolitik / German Economic Association.

    More about this item

    Keywords

    Trade; Employment; Informal sector; GSP; Rules of origin; Cambodia;
    All these keywords.

    JEL classification:

    • F15 - International Economics - - Trade - - - Economic Integration
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • J46 - Labor and Demographic Economics - - Particular Labor Markets - - - Informal Labor Market
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:asieco:v:90:y:2024:i:c:s1049007823000969. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/asieco .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.