Trade and Productivity in Formal and Informal Firms: Panel Data Evidence from Cambodia

Discussion Papers

No.771

by Kiyoyasu Tanaka

March 2020

ABSTRACT

The impact of trade on productivity is a crucial policy question for development, but prior work predominantly focuses on the formal sector. This paper constructs new panel data on formally registered and unregistered establishments in Cambodia. For identification, I exploit a natural experiment from Cambodia; the EU’s reform in rules of origin for the EU Generalized System of Preferences provided a positive export shock to the garment industry and a negative import shock to the textile industry. I find significant productivity improvements for both formal and informal establishments in the garment industry during the post-reform period. Positive export shocks promote productivity for both formal and informal firms.

Keywords: Trade, productivity, formal, informal, Cambodia

JEL classification: F13, F14, D24, E26, L67

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