Trade Liberalization and Labor Market Adjustment in Botswana

53 Pages Posted: 30 Sep 2019 Last revised: 8 Jun 2022

See all articles by Margaret McMillan

Margaret McMillan

Tufts University - Department of Economics; International Food Policy Research Institute (IFPRI); National Bureau of Economic Research (NBER)

Brian McCaig

Wilfrid Laurier University - School of Business & Economics

Date Written: September 2019

Abstract

We study the effects of domestic trade liberalization on labor markets in Botswana. South Africa is the dominant member of the Southern Africa Customs Union. As such, when South Africa liberalized trade in the 1990s, this induced large and plausibly exogenous tariff reductions for the other customs union members, including Botswana. Using labor force surveys from Botswana spanning a decade, we find that trade liberalization did not affect the relative size of industries in terms of employment. However, trade liberalization had effects within industries. We find an increase in the prevalence of working in an informal firm and self-employment, but mixed evidence of effects on unemployment. Hours worked decreased in response to trade liberalization, partially driven by the movement of workers to informal firms. Despite large increases in aggregate income, trade liberalization is associated with a reduction in monthly income, but the results are imprecise. Our results also suggest that a positive export demand shock, the 2000 African Growth and Opportunities Act, is associated with a reduction in employment in informal firms in the clothing industry.

Suggested Citation

McMillan, Margaret and McCaig, Brian, Trade Liberalization and Labor Market Adjustment in Botswana (September 2019). NBER Working Paper No. w26326, Available at SSRN: https://ssrn.com/abstract=3461495

Margaret McMillan (Contact Author)

Tufts University - Department of Economics ( email )

Medford, MA 02155
United States

International Food Policy Research Institute (IFPRI) ( email )

1201 Eye St, NW,
Washington, DC 20005
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Brian McCaig

Wilfrid Laurier University - School of Business & Economics ( email )

Waterloo, Ontario N2L 3C5
Canada

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