Studying trade-unemployment relationship in China-Africa context: Does Sub-Saharan Africa benefit from increased trade with China?
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School of Business |
Master's thesis
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Date
2018
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Mcode
Degree programme
Economics
Language
en
Pages
81+25
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Abstract
China’s renewed interest in Sub-Saharan Africa has awoken concerns about the world giant’s impact on Africa’s natural resources, employment and overall development. Since the early 2000s, China has provided African countries development aid with no strings attached and invested heavily in agriculture and infrastructure. Trade between the two regions has grown over 200-fold over the past 20 years. For Africa, China’s interest is multi-faceted and complicated. While Chinese infrastructure help to ease bottlenecks in African economies increased import competition has substituted existing African producers with Chinese products, especially in textiles. The aim of this study is to expand existing literature on China-Africa relationship by determining how an increase in exposure to trade with China impacts formal unemployment in Sub-Saharan Africa. The existing China-Africa literature is usually qualitative in nature and the available empirical literature concentrates on China’s impact on Africa’s development and trade in general. Therefore, there is a lack of empirical literature on labour market outcomes. Here, increased exposure to trade is measured by real trade openness, defined as imports plus exports divided by African country’s GDP in real terms. This measure should capture deepening political ties as well as a reduction in traditional trade protectionist means such as tariffs and quotas. The research question is answered through a panel data analysis, using author-collected data from various public sources such as the World Bank and International Trade Centre databases. The models used are based on the Ricardian theory of comparative advantage, combined with Diamond-Mortensen-Pissarides -style of labour markets that are characterized by search and matching frictions. The empirical analysis is complemented with an in-depth review of the literature on the impact of trade liberalization (or opening) as well as an introduction to China-Africa relationship through existing articles and media sources. All in all, the results of the analysis show that there exists a relationship between exposure to Chinese trade and the unemployment rate and that this relationship is unemployment-reducing. If on average trade opening increases by one percent, the unemployment rate is expected to decrease between 1.4% to 1.9%. Based on this result and the evaluation of literature, it is recommended that Sub-Saharan African governments should foster deeper trade relations with China, as well as encourage foreign direct investment that would create more employment for African citizens. These measures should be complemented with strengthening institutions that support the creation of new or existing comparative advantage industries and strengthen labour markets so that negative consequences are minimized. By strengthening its comparative advantage, African countries can foster job creation and stay competitive against China and other countries.Description
Thesis advisor
Haaparanta, PerttiKeywords
China, Sub-Saharan Africa, unemployment, international trade