Assessing the Impact of Trade Reforms on Informality in Egypt

This paper proposes an empirical investigation of the effect of trade liberalization on informality in Egypt. Trade reforms are likely to expose formal firms to a fiercer foreign competition. Consequently, such firms try to reduce labor costs by cutting workers benefits, replacing permanents workers with part-time labor and not providing workers with formal contracts or social security. This effect of trade liberalization on the informal sector has been widely discussed at both empirical and public policy levels but was never done empirically in Egypt. Thus, combining a microeconomic dataset (the Egyptian Labor Market Panel Survey) with some macroeconomic variables (on exports, imports and tariffs), we try to assess to what extent different trade reforms affected the informal sector in Egypt. Our main findings show that trade reforms increased informality in Egypt. These results remain robust under different econometric specifications and techniques.