International trade is believed to stimulate growth and raise wages in developing countries. But there is little evidence on the impact of trade on individual workers’ incomes. In sub-Saharan Africa (SSA) does exporting tend to raise or lower wages for manufacturing workers?

Research from the University of Nottingham, UK, examines how exporting affects workers’ wages at firms in six SSA countries: Cameroon, Ghana, Kenya, Tanzania, Zambia and Zimbabwe. The research is based on a survey of over 200 manufacturing firms in each of the six countries between 1993 and 1995. The companies surveyed were active in four main industries: food, metalworking, textiles, and wood and furniture.

In Cameroon, Kenya and Zimbabwe firms in the food industry were the main exporters. In Ghana, the wood and furniture industry had the highest share of exporters. While in Tanzania and Zambia textile firms were the most important exporters of the industries surveyed.

Standard trade theories suggest that exporting firms are more productive and efficient, make more use of capital and advanced technology, and pay their workers (especially their skilled and more educated workers) higher wages.

The researchers identify a number of differences between exporters and non-exporters among the SSA firms surveyed. They find that exporting firms tend to use more capital-intensive methods, add more value and have higher levels of labour productivity. They also employ more skilled labour. Exporting firms also tend to be larger and are more likely to be foreign owned.

The researchers find that:

• On average, exporting firms in SSA pay higher wages: between 8.5 percent and 17.6 percent more than non-exporting firms.
• Skilled and more educated workers tend to benefit most from the higher wages at exporting firms.
• These wage effects depend on where the exporting firm sells it products: firms exporting to other African countries pay higher wages than non-exporters while those exporting to countries outside Africa pay lower wages than non-exporters.
• Other factors associated with higher wages include foreign ownership, state ownership and location in the capital city.

Trade between African countries happens in the context of certain policy and natural barriers which protect firms from competition. Policy barriers include the growing number of bilateral and regional trading agreements in sub-Saharan Africa. African firms are also protected from competition from outside the region because of natural barriers including distance and poor infrastructure.

The researchers conclude that:

• African firms exporting to the regional market face less competitive market conditions than firms exporting to non-African markets.
• African firms exporting to the regional market can afford to pay higher wages; there is only a disciplining effect on wages (wages become lower) when firms export to more competitive markets.
• This effect may be particularly strong in the African context where trading agreements and natural barriers limit the competitiveness of regional markets.
• Research is needed to see if the same effect occurs in other developing regions where trade agreements and natural barriers influence export activity.

Source(s):
‘The Impact of Exporting and Export Destination on Manufacturing Wages: Evidence for sub-Saharan Africa’, Review of Development Economics, 11.1, pages 13-30, by Chris Milner and Verena Tandrayen, 2007

id21 Research Highlight: 20 July 2007

Further Information:
Chris Milner
School of Economics
Room B81, Sir Clive Granger Building
University of Nottingham
University Park
Nottingham NG7 2RD
UK

Tel: +44 (0)115 9515624
Fax: +44 (0)115 951 4159
Contact the contributor: chris.milner@nottingham.ac.uk

University of Nottingham

Verena Tandrayen
Department of Economics and Statistics
University of Mauritius
Reduit, Mauritius

Tel: +230 4541041
Fax: +230 4656184
Contact the contributor: v.tandrayen@uom.ac.mu

University of Mauritius

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"‘White gold’ turns to dust: the price of free trade in cotton"

Domestic Competition and Export Performance of Manufacturing Firms in Côte d’Ivoire, Working paper from the Centre for the Study of African Economies (CSAE) (PDF)

What about the workers? Brief from the The Australian Trade Commission (Austrade)