Trade Liberalization, Labor Mobility, and Structural Transformation

This project aims to understand the effect of trade liberalization on structural change.

In development economics, “structural change” refers to the shift in the “nature” of an economy that occurs as the economy develops. Structural change is a spatial phenomenon because different locations have different sectoral comparative advantages and starting points. It is also a spatial phenomenon, however, because workers (and firms) move across space for economic opportunities, and the speed with which they do so influences how fast an economy as a whole “transforms”. In this project the team will study how trade shocks to the South African economy affect structural change in both the “short run” (before migratory responses) and “long run” (after migratory responses).

With the implementation of the Trade, Development, and Cooperation Agreement (TDCA) in 2004, import tariffs faced by South African exporters to Europe decreased substantially. Using the differential changes in tariff rates across different agricultural and manufacturing products, the team will create a measure of the change in trade exposure for both the agricultural and non-agricultural sector of each South African municipality. They will first estimate the direct impact of the liberalization shocks on sectoral employment shares, incomes, and other labour market outcomes, comparing more and less (directly) affected municipalities to municipalities that are not (directly) affected, distinguishing also between municipalities’ exposure to the liberalization of agricultural and manufacturing exports. They will then estimate how migration of different types of workers across municipalities responds, and a model that accounts for the general equilibrium aspect of how South Africa’s economy responds to these shocks.

This project has clear relevance for policy in that it aims to evaluate the consequences of trade liberalization on the structural composition of the economy and labour mobility across sectors and districts.