Cambodia Investment Review
A recent World Bank working paper titled “Dynamic Exports and Labor Markets for Inclusive Growth in Cambodia” explores the impact of Cambodia’s trade liberalization on economic growth and labor markets over the past few decades. The report, authored by Deeksha Kokas, Jaime Alfonso Roche Rodriguez, Gladys Lopez Acevedo, Raymond Robertson, and Wendy Karamba, provides a comprehensive analysis of how Cambodia’s integration into global markets has influenced local labor markets, with a focus on employment, wages, and informality.
The study highlights that Cambodia’s rapid economic growth, largely fueled by trade liberalization and structural transformation, has led to significant improvements in employment, wages, and poverty reduction. The report utilizes two complementary analytical approaches—the gravity model and the Bartik shift-share method—to assess the relationships between trade policies, trade flows, and local labor market outcomes.
Cambodia Has Benefited Significantly From Trade Agreements
According to the gravity model results, Cambodia has benefited significantly from trade agreements within the Association of Southeast Asian Nations (ASEAN). These agreements have positively impacted trade flows, with Cambodia experiencing larger-than-average gains compared to other ASEAN members. This increase in trade has had a direct effect on local labor markets, particularly in reducing informality and increasing the number of hours worked, with female workers benefiting more than their male counterparts.
“Trade agreements between Cambodia and ASEAN countries have been instrumental in driving the country’s economic growth,” stated the authors. “Our findings indicate that these agreements not only boosted trade flows but also translated into tangible improvements in labor market outcomes, particularly for women.”
The Bartik analysis further supports these findings, showing that districts with higher exposure to trade experienced more substantial reductions in informality and increases in working hours. However, the study notes that while these improvements are significant, the effects tend to diminish over time, suggesting that the benefits of trade may diffuse gradually throughout the economy.
Persistent Challenge Of Labor Informality In Cambodia
Despite these positive developments, the report also underscores the persistent challenge of labor informality in Cambodia. While trade liberalization has contributed to economic progress, the impact on reducing informality has been limited. The authors call for targeted policies to further formalize the labor market and ensure that the gains from trade are more evenly distributed.
“Cambodia’s journey towards inclusive growth through trade liberalization is commendable, but there is still work to be done,” the report concludes. “Addressing the issue of labor informality will be crucial in ensuring that the benefits of economic growth are accessible to all segments of the population.”
The report provides valuable insights for policymakers and stakeholders as Cambodia continues to navigate its path towards sustained economic development. The findings suggest that while trade liberalization has been a key driver of growth, complementary policies are needed to address the structural challenges that remain in the labor market.
