Trade and Poverty in South Africa: Exploring the Trade-Labour Linkages

An important mechanism through which trade affects poverty is through its impact on employment. This paper explores the relationship between trade, employment and technological change in South Africa using correlation analysis, a decomposition analysis and the estimation of an induced labour demand model using industry panel data. We find little correlation between employment changes and changes in protection or trade flows, but find a bias in tariff reductions towards labour-intensive sectors. Manufacturing trade flows have also been biased against labour-intensive sectors, but the net effect of trade on employment is close to zero or positive once indirect effects are included. The majority of employment change is attributed to technological change. We find little evidence that this technological change has been induced by increased openness.