1. TRADE LIBERALIZATION AND EMPLOYMENT PERFORMANCE OF TEXTILE AND CLOTHING INDUSTRY IN TANZANIA. By Johansein Ladislaus Rutaihwa 6/26/20161

2. The Content of Discussion Introduction Introduction Trade Liberalization in Tanzania Trade Liberalization in Tanzania Literature Review (Methodological and Empirical issues) Literature Review (Methodological and Empirical issues) Methodology Methodology Analysis Analysis Conclusion and recommendations Conclusion and recommendations 6/26/20162

3. Introduction Macroeconomic performances in Tanzania (1980-2007) can generally be described as positive i.e improvement in country’s major macroeconomic variables. Macroeconomic performances in Tanzania (1980-2007) can generally be described as positive i.e improvement in country’s major macroeconomic variables. Macroeconomic achievements have not been transferred to lower level of poverty Macroeconomic achievements have not been transferred to lower level of poverty Prior to reforms,GDP was estimated at 2.7%, comparing favorably with growth rates recorded in other low income countries of the world Prior to reforms,GDP was estimated at 2.7%, comparing favorably with growth rates recorded in other low income countries of the world GDP per capita was below US $ 100 GDP per capita was below US $ 100 6/26/20163

4. Topic cont…. Economic activities were concentrated mainly in primary production. Agriculture and industry accounted for over 60% and 2.8% of GDP respectively Economic activities were concentrated mainly in primary production. Agriculture and industry accounted for over 60% and 2.8% of GDP respectively The external sector (export+import of goods and services) contributed 31% of GDP The external sector (export+import of goods and services) contributed 31% of GDP 1961-1965, positive balance of payment 1961-1965, positive balance of payment 1970s, Tanzania faced series of internal and external shocks 1970s, Tanzania faced series of internal and external shocks National Economic Survival Programme (NESP) National Economic Survival Programme (NESP) In the mid 1980s, introduction of price reforms and institutional reforms In the mid 1980s, introduction of price reforms and institutional reforms 6/26/20164

5. Topic cont…. Employment: pre-adjustment in the informal sector accounted for 92% of 7.98m people compared to the adjustment period in 1989 where the employment accounted for 92% of 9.81m total labour forces Employment: pre-adjustment in the informal sector accounted for 92% of 7.98m people compared to the adjustment period in 1989 where the employment accounted for 92% of 9.81m total labour forces 1986 to 1989 total wage employment grew by 0.7 per cent annually, compared to 1.3 percent growth in 1981-1985 and 5 per cent for the 1976-80 1986 to 1989 total wage employment grew by 0.7 per cent annually, compared to 1.3 percent growth in 1981-1985 and 5 per cent for the 1976-80 1992-1997 employment growth in manufacturing sector was negative while 1997-2000 had positive growth 1992-1997 employment growth in manufacturing sector was negative while 1997-2000 had positive growth Textile employment was affected by reforms Textile employment was affected by reforms 6/26/20165

6. Topic cont…. Problem statement, Reforms impacted labour in terms of employment and earnings. Problem statement, Reforms impacted labour in terms of employment and earnings. Objectives: to document and examine the employment performance of the textile and clothing industry during trade liberalization episodes in Tanzania Objectives: to document and examine the employment performance of the textile and clothing industry during trade liberalization episodes in Tanzania To analyze the effect of trade liberalization on employment and wages in textile industry of Tanzania. To analyze the effect of trade liberalization on employment and wages in textile industry of Tanzania. To identify supporting policies i.e facilitate reforms To identify supporting policies i.e facilitate reforms Justification: Justification: -WTO Rules -WTO Rules -RTA Agreements -RTA Agreements -Bilateral Agreements -Bilateral Agreements 6/26/20166

7. Topic cont…. Scope: Tanzania mainland, data from 1980-2007 Scope: Tanzania mainland, data from 1980-2007 Hypotheses to be tested H1: The implementation of trade liberalization has no significant impact on employment in the textile industry of Tanzania H1: The implementation of trade liberalization has no significant impact on employment in the textile industry of Tanzania H1: The implementation of trade liberalization has no significant impact on wages in the textile industry of Tanzania. H1: The implementation of trade liberalization has no significant impact on wages in the textile industry of Tanzania. Study Outline Study Outline 6/26/20167

8. Trade Liberalization in Tanzania Trade policy has been changing i.e 1960-1980 industry was based on protection Trade policy has been changing i.e 1960-1980 industry was based on protection Three trade regimes as a strategy for industrial development i.e Arusha declaration 5-6 years after independence ( private sector),Post-Arusha declaration 1967-1980 was divided into two distinct periods 1967 and post 1967 it encouraged investment and government provided financial support Three trade regimes as a strategy for industrial development i.e Arusha declaration 5-6 years after independence ( private sector),Post-Arusha declaration 1967-1980 was divided into two distinct periods 1967 and post 1967 it encouraged investment and government provided financial support 1986, the country adopted a Structural Adjustment Programme i.e Open General Licensing, abolition of export taxes, simplification of Tariff and introduction of export promotion scheme e.t.c 1986, the country adopted a Structural Adjustment Programme i.e Open General Licensing, abolition of export taxes, simplification of Tariff and introduction of export promotion scheme e.t.c 6/26/20168

9. Topic cont…. The manufacturing sector in Tanzania is not strong i.e 1.6% in 1995 to 9% in 2005 The manufacturing sector in Tanzania is not strong i.e 1.6% in 1995 to 9% in 2005 2006, 9.2% to GDP compared to 9.0 % in 2005,in 2006 grew by 8.6% compared to 9.0% in 2005 and is the second sector in employment creation 2006, 9.2% to GDP compared to 9.0 % in 2005,in 2006 grew by 8.6% compared to 9.0% in 2005 and is the second sector in employment creation Textile employees 37,000 and was the third source of government revenue Textile employees 37,000 and was the third source of government revenue 1970s-1980s contributed significantly to the share of manufacturing to GDP. 1970s-1980s contributed significantly to the share of manufacturing to GDP. Poor management, lack of technical expertise, as well as lack of working capital resulted in most mills to be closed. Poor management, lack of technical expertise, as well as lack of working capital resulted in most mills to be closed. 6/26/20169

10. Literature Review Theoretical issues i.e Heckscher –Ohlin –Samuelson- Stopler, macroeconomic standard theory model, Neoclassical theory, Traditional dependent economy model, wage efficiency theory Theoretical issues i.e Heckscher –Ohlin –Samuelson- Stopler, macroeconomic standard theory model, Neoclassical theory, Traditional dependent economy model, wage efficiency theory Methodological and Empirical issues;-Papageorgiou, Michaely and Choksi in 19 countries– One year after trade liberalization, manufacturing employment increased with one or two exceptions Methodological and Empirical issues;-Papageorgiou, Michaely and Choksi in 19 countries– One year after trade liberalization, manufacturing employment increased with one or two exceptions Parker et al. for 5 African Countries Employment growth in existing MSES was strong Parker et al. for 5 African Countries Employment growth in existing MSES was strong Harrison and Revenga In Costa Rica, Peru and Uruguay, employment growth was not trade liberalization. Harrison and Revenga In Costa Rica, Peru and Uruguay, employment growth was not trade liberalization. Magee (1972) found 12% increase in employment, Baldwin 1980 found 4% increase in employment Magee (1972) found 12% increase in employment, Baldwin 1980 found 4% increase in employment 6/26/201610

11. Topic cont…. Bale (1976), in US found unemployment lasted for 31 weeks Bale (1976), in US found unemployment lasted for 31 weeks Akhmedov et al (2004) found the magnitude of responsiveness in labour demand to reforms was very low Akhmedov et al (2004) found the magnitude of responsiveness in labour demand to reforms was very low 6/26/201611

12. Methodology Analytical framework: How labor reallocation process and adjustment cost are borne? And How gradualism is captured? trade liberalization to be welfare improving, adjustment costs must be sufficiently small Analytical framework: How labor reallocation process and adjustment cost are borne? And How gradualism is captured? trade liberalization to be welfare improving, adjustment costs must be sufficiently small Adjustment assistance might speed up the pace of liberalization if the government compensates the workers laid off from the import sector, and might slow down the speed of liberalization if government decides to compensate workers switching into the import sector Adjustment assistance might speed up the pace of liberalization if the government compensates the workers laid off from the import sector, and might slow down the speed of liberalization if government decides to compensate workers switching into the import sector Changes in Tariff forms the basis of switching and compensating the workers Changes in Tariff forms the basis of switching and compensating the workers Import surplus and export surplus determine welfare improvement Import surplus and export surplus determine welfare improvement 6/26/201612

13. Topic cont…. In relation to empirical model use of effective protection as one of the variables in the model and use of import and export to calculate import concentration and export intensity (State of technology) build up the relationship between the framework and the empirical model. In relation to empirical model use of effective protection as one of the variables in the model and use of import and export to calculate import concentration and export intensity (State of technology) build up the relationship between the framework and the empirical model. Empirical model: Cobb-Douglas Production function Empirical model: Cobb-Douglas Production function 6/26/201613

14. Topic cont…. Both descriptive and econometric analysis (Co integration approach) are used Both descriptive and econometric analysis (Co integration approach) are used Unit root test: ADF test and PP Unit root test: ADF test and PP Co integration Analysis i.e long run relationship Co integration Analysis i.e long run relationship VECM: If the variables are co-integrated, estimating the equation in first differences result to a loss of the valuable information on the long run relationship between the levels of the variables VECM: If the variables are co-integrated, estimating the equation in first differences result to a loss of the valuable information on the long run relationship between the levels of the variables 6/26/201614

15. Analysis Descriptive Analysis and Econometric Analysis. Descriptive Analysis and Econometric Analysis. Descriptive:Employment i.e Post-Reforms 1985-1995 (0.16%) viz 1980-1984 (3.4%),1996-2005 (2 percent in 1997 to 6 percent in 2001 before it declined in 2002), 2006- present 1% Descriptive:Employment i.e Post-Reforms 1985-1995 (0.16%) viz 1980-1984 (3.4%),1996-2005 (2 percent in 1997 to 6 percent in 2001 before it declined in 2002), 2006- present 1% Descriptive:Wage1980-84(increasing), 1985-1995( slow increase, however 1992-94 (impressive result ) Descriptive:Wage1980-84(increasing), 1985-1995( slow increase, however 1992-94 (impressive result ) 1996-2005 wages had a steady growth,2006- wages were almost approaching to negative values, which imply that there is little improvement in worker’s wages. 1996-2005 wages had a steady growth,2006- wages were almost approaching to negative values, which imply that there is little improvement in worker’s wages. 6/26/201615

16. Topic cont…. Output and Productivity 1980-1995 (negative result), 1996- 2006 (positive result) Output and Productivity 1980-1995 (negative result), 1996- 2006 (positive result) Econometric Analysis: Normal Distribution of Variables (Jargue-Bera test viz Log likelihood) Econometric Analysis: Normal Distribution of Variables (Jargue-Bera test viz Log likelihood) ADF Unit root test (stationarity): constant included viz constant and linear trend included (1% significance) ADF Unit root test (stationarity): constant included viz constant and linear trend included (1% significance) Co-integration using Johansen approach (Why?) Co-integration using Johansen approach (Why?) Sensitive to Lag length hence optimal lag based on Akaike criteria. Assumes quadratic deterministic trend in data. Sensitive to Lag length hence optimal lag based on Akaike criteria. Assumes quadratic deterministic trend in data. 6/26/201616

17. Topic cont…. Maximum eigenvalue test and the trace results indicate the existence of a unique co integrating vector between test variables for both employment and wage equation Maximum eigenvalue test and the trace results indicate the existence of a unique co integrating vector between test variables for both employment and wage equation Normalized results Employment : In long run Export intensity viz employment (-), thus tariff reduction encourages employment creation (reject hypothesis), Output viz Empl (+), Wage viz empl (-) Normalized results Employment : In long run Export intensity viz employment (-), thus tariff reduction encourages employment creation (reject hypothesis), Output viz Empl (+), Wage viz empl (-) Normalized results Wage: Import concentration very high than Export intensity Normalized results Wage: Import concentration very high than Export intensity VAR Stability, The entire eigenvalues lie inside the unit circle VAR VAR Stability, The entire eigenvalues lie inside the unit circle VAR 6/26/201617

18. Topic cont…. VECM Employ: autocorrelation problem (Breusch-Godfrey Serial Correlation LM test) heteroscedasticity (Breusch-Pagan / Cook-Weisberg) and normality were tested VECM Employ: autocorrelation problem (Breusch-Godfrey Serial Correlation LM test) heteroscedasticity (Breusch-Pagan / Cook-Weisberg) and normality were tested Error correction term Significant at 10% (In long run + relationship btn employment viz independent variables Error correction term Significant at 10% (In long run + relationship btn employment viz independent variables Magnitude of coefficient of ECM shows that 14% of the short run disequilibrium adjusts to the long run equilibrium each year, which indicates the speed of employment to converge to the long run equilibrium point is slow Magnitude of coefficient of ECM shows that 14% of the short run disequilibrium adjusts to the long run equilibrium each year, which indicates the speed of employment to converge to the long run equilibrium point is slow VECM Wage: Positive sign on error correction term Why? VECM Wage: Positive sign on error correction term Why? - efficiency wage theory and subsistence wage theory do not hold in the textile sub sector either because of the weak trade union or low government wage scale 6/26/201618

19. Topic cont…. - Labor market in Tanzania is less flexible in the formal sector. - skilled workers salaries is fixed while unskilled labour their salaries is flexible Variance Decomposition for both employment and wages supports the prior results discussed above Variance Decomposition for both employment and wages supports the prior results discussed above 6/26/201619

20. Conclusion &Recommendation Summary of the study Summary of the study Major findings Major findings Policy Recommendation Policy Recommendation The process of trade reforms should be more gradual -strengthen institution framework and good governance system -strengthen institution framework and good governance system -Attracting investors into Manufacturing sector i.e creating enabling environment -Attracting investors into Manufacturing sector i.e creating enabling environment -Encouraging active labour market programmes such as counseling, training, moving allowances, assistance to secure new jobs and re-employment services i.e TAESA -Encouraging active labour market programmes such as counseling, training, moving allowances, assistance to secure new jobs and re-employment services i.e TAESA -industrial support service i.e environment management, certification, R&D, standard & quality assurance -industrial support service i.e environment management, certification, R&D, standard & quality assurance 6/26/201620

21. Topic cont…. - Improve the regulatory framework and institution building - Develop other key complementary sectors i.e tourism, minerals, agriculture - Establishment of development loans - Supporting R&D -Updates of National Trade policy to complement with Multinational Policy Limitation of the Study Limitation of the Study Areas for further research i.e second hand cloth, formal viz informal, same study by primary data Areas for further research i.e second hand cloth, formal viz informal, same study by primary data 6/26/201621

22. Topic cont…. Thank you for your Attention! Thank you for your Attention! 6/26/201622