International Bridges and Informality

This study empirically investigates the effects on the formal–informal wage gap of the opening of an international bridge, specifically the second Thai–Lao Friendship Bridge, between Thailand and Laos in December 2006. We examine the wage gap between formal and informal workers in the border regions of Thailand using individual-level data from the Informal Employment Surveys for 2006 and 2011. We address endogeneity issues by using the instrumental variable method and introducing time-variant province fixed effects. Our findings can be summarized as follows. First, we find that formal workers in agriculture tend to be male, married, and urban residents, while those in construction are urban residents and have more than an elementary school education. Second, we find that formal workers have significantly higher wages compared with informal workers. Third, we find that the opening of the second bridge increased wages to a greater extent for formal workers than for informal workers; that is, it expanded the formal–informal wage gap. Such an effect is localized and can be observed up to 200 km from the bridge.