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

Author

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  • 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
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    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.

    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

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