Formalising informal cross-border trade: Evidence from One-Stop-Border-Posts in Uganda

Informal trade is pervasive between sub-Saharan African countries. This study examines the extent to which the value of informal trade changes as a result from a change in the costs of trade. More specifically, I exploit time and custom point variation in the introduction of border facilities, aimed at reducing border delays and corruption. I find that the ratio of informal to total trade values between Uganda and its neighbours is reduced only in the quarter when the border facilities are introduced. By using an original data set collected at two border towns between Kenya and Uganda, I examine whether this result can be explained by formalisation of cross-border traders. I find that few traders formalise despite the reduced costs associated with trading formally, and that trade costs and border crossing choices are not only associated with export restrictions, but are also gendered.