Trade Liberalisation and Labour Market Adjustment in Botswana

Abstract We study the effects of domestic trade liberalisation on labour markets in Botswana. South Africa is the dominant member of the Southern Africa Customs Union. As such, when South Africa liberalised trade in the 1990s, this induced large and plausibly exogenous tariff reductions for the other customs union members, including Botswana. Using labour force surveys from Botswana spanning a decade, we find that trade liberalisation did not affect the relative size of industries in terms of employment. However, trade liberalisation 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 liberalisation, partially driven by the movement of workers to informal firms. Despite large increases in aggregate income, trade liberalisation 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.