International Trade and Employment Volatility in Rwanda

This project studies the impact of globalization on employment and wages focusing on the relationship between both importing and exporting and employment volatility in Rwanda.

The impact of globalization on employment and wages is currently a significant policy concern. This concern partly relates to the fact that increased globalization has been contemporaneously accompanied by increased inequality in many industrialized and some developing countries. While globalization has several key dimensions, this project will focus on international trade (specifically on the employment impacts faced by firms engaging directly in international trade). It will therefore try to answer how employment volatility compares between firms that directly import and/or export to non-trading firms. A second part of the project will focus on the impact of globalization on the retail sector. More specifically, it aims to develop a methodology for estimating productivity in the retail sector, as there is currently no measure beyond labour productivity.

The analysis exploits a dataset that links (using a firm-level unique taxpayer-identification number) customs transaction-level dataset of imports and exports in Rwanda over the period 2001 to 2014, firm’s reports to the Rwandan payroll authority from 2008 to 2014 (including number of employees and firm total wage bill) and firm’s reports to the tax authority from 2008 to 2013 (including total sales and total value-added). In addition, since employment volatility may be correlated with some other variable that the researcher may not be able to control for, he will instrument it with firm-level exchange rate. Hence, for each firm that imports (exports), a firm-level exchange rate will be constructed based on the firm’s source (destination) countries for its imports (exports) prior to the sample period. The changes in these exchange rates will serve as an instrument for employment volatility in the study. Since this dataset has been collected administratively rather than through a survey, the principal investigator plans to interview importing and exporting firms to develop a complete and correct understanding of the mechanisms found in the quantitative analysis.

The strongest concerns regarding globalization relate to wage and employment concerns, particularly for lower-income, or lower-skilled segments of the population, both in industrialized developing countries, since higher-skilled, higher-wage individuals have been found empirically to benefit after globalization. Therefore, this research will contribute to the understanding of the relationship between globalization - through international trade - and employment volatility, which is key for policymakers coping with globalization’s impact on welfare.