Discussion Papers

No.772 Trade and Employment in the Formal and Informal Sectors: A Natural Experiment from Cambodia

by Kiyoyasu Tanaka and Theresa M. Greaney

March 2020


To assess how trade affects employment in the formal and informal sectors, we exploit a natural experiment from Cambodia; the EU’s reform in rules of origin for duty-free market access provided a positive export shock to the garment industry and a negative import shock to the textile industry. We use a unique dataset on both formally registered and unregistered establishments in Cambodia. We find that the trade shocks caused large positive employment effects on formal garment establishments and large negative employment effects on formal textile establishments, with little employment effects on informal establishments in these industries. The positive employment effects predominantly involve female workers in locally owned incumbent firms.

Keywords: Trade, employment, informal sector, GSP, rules of origin, Cambodia

JEL classification: F15, F16, J46, O17

Please note that discussion papers are works in various stages of progress and most have not been edited and proofread and may contain errors of fact or judgment. Revised versions of these papers may subsequently appear in more formal publication series. The views expressed in this publication are those of the author(s). The IDE does not guarantee the accuracy of the data included and accepts no responsibility for any consequences arising from its use.