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Trade Openness and Labor Force Participation in Africa: The Role of Political
Institutions*
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Trade Openness and Labor Force Participation in
Africa: The Role of Political Institutions*
ARUSHA COORAY, NABAMITA DUTTA, and SUSHANTA

MALLICK
Trade liberalization is usually expected to lead to greater economic activity

including higher labor force participation rates. Using data from forty-eight Sub-
Saharan African countries over the period 1985–2012, we explore the impact of
trade openness on labor force participation rates (LFPR), and examine how politi-
cal institutions such as democracy, political rights, and civil liberties can play a
role in driving this relationship in the above group of low-income countries. The
estimated marginal impact of openness on LFPR shows that LFPR is increasing
with the level of institutional quality. In particular, political institutions are critical
in enhancing the benefit from openness. Our conclusions are similar for male and
female participation rates although the magnitudes of the former are higher, thus
confirming that improving institutions can generate greater labor market benefits
from trade in poor countries.
Introduction
Higher labor force participation rates (LFPR) of men and women can signif-
icantly boost a country’s economic development, as it increases labor supply
and a country’s production capability. While high LFPR can increase a
nation’s potential output and promote economic growth, changes in LFPR in
the short term indicate changes in job-market trends and movements in the
business cycle. Greater external openness can lead to an expansion of the
traded-goods sector, generating new employment opportunities, including
increase in female or youth participation in the labor market. Moreover, in the
recent decades, the importance of institutions and education has also altered
the landscape of labor supply, which needs to be considered while examining
*The authors’ affiliations are, respectively, University of Nottingham Malaysia Campus, Jalan Broga,
43500 Semenyih, Malaysia. E-mail: Arusha.Cooray@nottingham.edu.my; University of Wisconsin, La
Crosse, La Crosse, Wisconsin. E-mail: ndutta@uwlax.edu; Queen Mary University of London, London, UK.
E-mail: s.k.mallick@qmul.ac.uk. The authors are grateful to the editor and the two anonymous reviewers for
their very helpful comments. The usual caveat applies.
JEL: F10, F40, O11.
INDUSTRIAL RELATIONS, Vol. 56, No. 2 (April 2017). © 2017 Regents of the University of California
Published by Wiley Periodicals, Inc., 350 Main Street, Malden, MA 02148, USA, and 9600 Garsington
Road, Oxford, OX4 2DQ, UK.
319
320 / ARUSHA COORAY, NABAMITA DUTTA AND SUSHANTA MALLICK
the effect of the degree of openness. The average LFPR for Sub-Saharan
Africa (SSA) over the period 1985 to 2012 varies significantly across nations
(see Figure 1). While countries such as Tanzania and Equatorial Guinea have
high LFPR, Mali and Mauritania suffer from low participation rates. Accord-
ingly, we see variation in male labor force participation rate (MLPR) and
female labor force participation rate (FLPR) across these nations. What
explains this variation in LFPR across different SSA countries?
While attempts have been made to investigate the reasons for slow growth
in SSA (Collier and Gunning [1999] and Easterly and Levine [1997], to men-
tion a few), there are very few studies, if any, investigating labor market con-
ditions in SSA. Among other factors that can contribute to slow growth,
including low human capital, political instability, inefficient government
expenditure, rigid labor markets, narrow financial systems, and high levels of
ethnic fractionalization, Collier and Gunning (1999) have blamed Africa’s con-
trolled regime characterized by restricted international trade, tariffs, and export
taxes and quota impositions as an important factor. When a nation participates
more in the world trade and becomes more competitive, can it experience a
rise in LFPR? This is a key question that the present paper aims to explore.
How can trade openness affect the LFPR? Evidence has shown that coun-
tries that are more open, experience higher growth rates compared to those that
are closed (Ben-David 1996; Grossman and Helpman 1990; Romer 1990).
Studies also show that the steady increase in the volume of international trade
due to globalization has affected local labor markets and consequently the
FIGURE 1
LABOR FORCE PARTICIPATION RATES FOR A SUBSAMPLE OF SUB-SAHARAN AFRICAN COUNTRIES
100
90
80
70
60
50
40 LFPR
30 MLPR
20
FLPR
10
0
NOTES: We consider average figures. Twenty countries are depicted here. These twenty countries
are the top ten and bottom ten countries in our sample sorted by average LFPR.
Trade Openness and Labor Force Participation / 321
LFPR of both males and females in a number of countries (Cagaty and Berik
1990; Gaddis and Klasen 2012; Jonsson and Subramanian 2001).1 Further, the
literature has pointed to the differential impacts that openness can have on
male and female LFPR (Gaddis and Klasen 2012; Jonsson and Subramanian
2001). Where males and females have different skills, globalization may lead
to increases in wage differentials, increasing the demand for female labor as
opposed to male, because it is cheaper (Anderson 2005; Cagaty and Berik
1990). By increasing competition, trade openness can also reduce the bargain-
ing power of workers, in particular female workers, if they are employed dis-
proportionally in low-wage sectors (Oostendorp 2009) or have lower levels of
education (Bhorat and Hodge 1999). Thus, we explore the impact of openness
on total, male, and female labor force participation rates, considering the role
of trade openness and the importance of education.
The influence of trade openness on the LFPR, however, may not be that
straightforward. There are a number of other factors that may influence the
impact of openness on the LFPR. In this paper, we focus on one such factor—
political institutions. As we can see in Figure 2, countries such as Mauritania
and Gabon suffer from low LFPR despite having high trade openness. This is
due to poor political institutions as evident from the figure. But Botswana and
Senegal have stronger institutions and thus can benefit from trade openness
and higher LFPR. The studies of Rodrik (1998) and Asiedu (2006) highlighted
the limits to what trade policy can achieve unless accompanied by other fac-
tors, including strong institutions. Similarly, Bhattacharyya, Dowrick, and Gol-
ley (2009) emphasized the complementarity between trade openness and
political institutions. The ability to take advantage of trade-induced technologi-
cal skills and knowledge, and to benefit from the linkages created by trade in
the form of increased exports, employment, and income therefore requires
well-developed institutions (Bigsten et al. 2000; Janson and Nordas 2004). An
examination of the Polity2 trends in Africa, compared to those of North Amer-
ica and Europe, indicates that while the number of autocracies and anocracies
has fallen over time in North America and Europe, in Africa the number of
anocracies has increased, which could have negatively influenced the effect of
trade openness on the LFPR (see Figures 3, 4, and 5).
We argue therefore that the higher the quality of institutions in a country,
the greater the positive effects of openness on LPFR. To the best of our
knowledge, this is the first paper to explore the interactive effect of trade
1
The LFPR can go up due to incentives granted to export oriented industries (Kabeer and Mahmud
2004) or due to a fall in the gender wage gap as a result of liberalization-induced change in sectoral struc-
ture of production (Thurlow 2006). On the other hand, if greater openness favors imports rather than
exports, then the LFPR can go down (Edwards 1999).
FIGURE 2
TRADE OPENNESS AND LFPR FOR GOOD AND BAD POLITICAL INSTITUTIONS
93
LFPR, Trade and Polity2
73
LFPR
53
Trade
33 Polity2
13
-7 Mauritania Gabon Botswana Senegal
FIGURE 3
SUB-SAHARAN AFRICA: REGIMES BY TYPE, 1946–2012
NOTES: Countries included are: Angola, Benin, Botswana, Burkina Faso, Burundi, Cameroon, Cape Verde, Central African
Republic, Comoros, Congo, Democratic Republic of Congo, Djbouti, Equatorial Guinea, Eritrea, Ethiopia, Gabon,
Gambia, Ghana, Guinea, Guinea-Bissau, Ivory Coast, Kenya, Lesetho, Liberia, Madagascar, Malawi, Mauritius,
Mozambique, Namibia, Nigeria, Rwanda, Senegal, Sierra Leone, Somalia, South Africa, Swaziland, Tanzania, Togo,
Uganda, Zambia, Zimbabwe.
SOURCE: http://www.systemicpeace.org/p4creports.html [Color figure can be viewed at wileyonlinelibrary.com]
openness and political institutions on LFPR in Africa. Following on from the

above discussion, the main contributions of our study are twofold: to investi-
gate specifically, the influence of trade openness on the LFPR, MLPR, and
FLPR in Sub-Saharan Africa at different levels of political institutions and to
FIGURE 4
NORTH AMERICA: REGIMES BY TYPE, 1946–2012
NOTES: Countries included are: Canada, Costa Rica, Cuba, Dominican Republic, El Salvador, Guatamala, Haiti, Hondurous,
Jamaica, Mexico, Nicaragua, Panama, the United States
SOURCE: http://www.systemicpeace.org/p4creports.html
estimate the marginal impact of trade openness on LFPR (total, male, and
@LF
female), i.e., @Trade at different levels of institutional quality. The marginal esti-
mates provide a detailed perspective as to how the impact of openness on
LFPR, MLPR, and FLPR varies throughout the sample for different levels of
institutional quality.
Our empirical analysis is based on forty-eight Sub-Saharan African countries
over the period 1985 to 2012. We use fixed-effects estimation to account for
country-level time-invariant unobservable influences on LFPR, and system
generalized method of moments (GMM) as well as difference GMM to correct
for any potential endogeneity bias in the data. Apart from correcting for poten-
tial endogeneity in the data arising out of reverse causality or omitted variable
bias, such dynamic panel estimators (system GMM or difference GMM) are
well suited to handle several panel data challenges (Asiedu, Jin, and Nandwa
2009; Roodman 2009). Our results support the hypothesis that political institu-
tions significantly affect the trade–labor force participation relationship. Our
benchmark results show that trade almost always has a positive impact on
@LF
LFPR. As the quality of institutions improves, the magnitude of @Trade tends to
increase. These results are robust for different model specifications. In terms of
economic significance, if we consider two countries, the Democratic Republic
of Congo and Cape Verde, for a similar rise in trade openness (by one stan-
dard deviation), Cape Verde with better political institution will experience
almost 116 percent more rise in LFPR compared to the Democratic Republic
FIGURE 5
EUROPE: REGIMES BY TYPE, 1946–2012
NOTES: Countries included are: Albania, Austria, Belarus, Belgium, Bosnia, Bulgaria, Croatia, Czech Republic, Denmark,
Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Kosovo, Latvia, Lithuania, Macedonia, Moldova,
Motenegro, Netherlands, Norway, Poland, Portugal, Romania, Russia, Serbia, Slovak Republic, Slovania, Spain,
Sweden, Switzerland, Ukraine, United Kingdom.
SOURCE: http://www.systemicpeace.org/p4creports.html
of Congo. The impact is almost similar in the case of MLPR but lower in
the case of FLPR. Thus, countries will gain competitiveness in international
trade when they have stronger political institutions and better checks and
balances.
The rest of this study is structured as follows. The next section outlines the
background of this study with relevant literature. We then discuss the data
used and describe the empirical methodology. We then report and discuss the
main findings that emerge from our analysis, and undertake a sensitivity analy-
sis. The last section reviews the central messages of the paper.
Theoretical Background
There are a number of channels through which greater trade openness can
affect LFPR. First, incentives granted to export-oriented industries can lead to
an increase in LFPR (Kabeer and Mahmud 2004; Ozler 2000). Second, struc-
tural adjustment programs leading to removal of subsidies can increase liquid-
ity constraints faced by families, and therefore could persuade more
individuals to join the labor force. Third, if greater openness led to an increase
in wage rates, LFPR would be a positive function of openness. This is evi-
denced by Thurlow (2006), in a study of the effect of trade liberalization on
men and women in South Africa. Thurlow (2006) observed that liberalization
leads to a change in the sectoral structure of production and a fall in the gen-
der wage gap, causing male and female workers to gain from trade-led growth.
Fourth, if greater openness favored imports rather than exports, then it can
adversely affect LFPR. The studies of Bell and Cattaneo (1997) and Edwards
(1999) found a negative relationship between liberalization and employment in
South Africa. Using a factor content approach, Bell and Cattaneo (1997) and
Edwards (1999) argued that the influx of imports reduced employment in
South Africa. Edwards (2001), however, observed that employment losses due
to increased imports were offset by the increased demand for exports.
Studies also show that greater openness can have differential effects on the
male and female LFPR. Where males and females have different skills, global-
ization may lead to increases in wage differentials increasing the demand for
female labor as opposed to male labor, because it is cheaper (Anderson 2005;
Cagaty and Berik 1990). There is also the counterargument that trade openness
can lead to a fall in FLPR and increase in MLPR, if greater openness is accom-
panied by technological upgrading that benefits males. This, in turn, leads to an
increase in demand for skilled relative to unskilled labor, which can lead to a
male advantage in the acquisition of jobs compared to females (Wood 1998).
The use of labor-saving technology therefore may have an adverse impact on
female employment and income due to the substitution of male for female labor
(see Seguino 2000). Oostendorp (2009), for example, noted that in developing
economies, foreign direct investment (FDI) benefits male engineers or computer
programmers more than female engineers or computer programmers because
males are likely to be relatively better educated. Bhorat and Hodge (1999)
found similar evidence for South Africa with trade benefitting only skilled
labor. Greenhalgh (1985) similarly found evidence of occupational segregation,
and limited opportunities for high-status and high-paying jobs for women, with
income opportunities favoring men. If trade leads to increasing occupational
segregation or a reduction in leisure time for female workers, women may be
less inclined to be employed (Seguino 2000).
By increasing competition, trade openness can also reduce the bargaining
power of workers, in particular female workers, if they are employed dispro-
portionally in low-wage sectors (Oostendorp 2009). This can have negative
effects on FLPR.2 Anker, Melkas, and Korten (2003) supported these views,
2
There is another line of literature that also shows greater transitory participation in the labor force by
women due to changes in the business cycle (see Bhalotra and Umana-Aponte 2010).
showing that in the 1990s approximately 50 percent of all workers were in a
gender-dominated occupation with around 60 percent of men in male-domi-
nated jobs and approximately 30 percent of women in female-dominated jobs.
Similar arguments were put forward by Berik (1995), who noted that global-
ization, by increasing the demand for skilled workers, has reduced the demand
for low-skilled workers, leading to a female disadvantage in job acquisition.
Higher levels of male education relative to female education and occupational
segregations are other factors that have disadvantaged females relative to males
in the labor market.
There is a very limited literature that examines the role played by institutions
in the relationship between trade openness and LFPR. Asiedu (2006) examined
the role of institutions in directing foreign direct investment (FDI) flows into
the African region. She concluded that Sub-Saharan Africa can increase FDI
flows into the region by improving their institutions and policies. Fox and
Oviedo (2008), in a firm-level study of twenty Sub-Saharan African countries,
examined the relationship between labor market regulations and net job cre-
ation. Their results revealed that at the firm level, labor regulations are not the
main binding constraint for employment creation. In the long run, other factors,
such as legal origin of the country, which proxy for regulation, and firm-specific
factors are also important. Janson and Nordas (2004), investigating how domes-
tic institutions influence international trade, found that the quality of institutions
has a significant and positive effect on a country’s level of openness. Therefore,
the absence of proper property rights, rule of law, and political stability con-
strains the proper operation of the market system. Bigsten et al. (2000) showed
how the lack of an effective legal system constrains contractual agreements
between manufacturing firms in a number of African countries and prospective
importers. Therefore, countries that have stronger institutions are less risky and
more attractive to trade with, as stronger institutions—namely increasing demo-
cratic institutions, civil liberties, and political right—will increase stability and
reduce uncertainty. This, in turn, will generate an environment more favorable
to trade. As more open countries are in general more accountable, they may
exhibit stronger institutions and therefore higher LFPR.
Rodrik (1998) argues that trade policy in Sub-Saharan Africa operates in the
same manner as it does in other countries. While trade restrictions were
observed to have been a constraint to exports in the past, their elimination is
to be expected to lead to trade increases in the region. These views are con-
firmed by Van Biesbroeck (2005) and Zafar (2007), who found strong spil-
lover effects due to trade. Despite the large literature on Africa, little is known
of the role of trade openness on LFPR at different levels of institutional qual-
ity. Therefore, the present study aims to contribute to the existing literature by
investigating this issue for forty-eight Sub-Saharan African nations.
Data
Data for our paper come from different sources. The dependent variables
consist of labor-force participation rates for males and females as well as the
total participation rates. Data are taken from the World Development Indicators
(World Bank 2013) online database.3 For all LFPR, the figures are expressed as
a percentage of total working-age population. The mean for total LFPR is 71.8
for our sample. The mean is higher for MLPR (80.3) compared to FLPR
(63.5). Our independent variables of interest are openness and alternative mea-
sures of political institutions. We consider trade openness from the WDI data-
base (World Bank 2013). The variable is defined as the sum of exports and
imports of goods and services as a share of gross domestic product (GDP). The
mean for trade openness for our sample is 72.4. We consider the Polity24 index
from the Polity IV database (Marshall and Gurr 2013) as the benchmark mea-
sure of political institutions. This index ranges from –10 to +10 with the mini-
mum representing a “strongly autocratic” system and the maximum
representing a “strongly democratic” system. Along with Polity2, the other
benchmark measure for political institutions is political rights (PR), from the
Freedom House database (Freedom House 2014). The measure5 captures checks
and balances on the ruling authority in terms of voting rights of individuals and
degree of accountability of executives. As an alternate measure, we consider
civil liberties (CL) from the same database. Both these variables range from 1
to 7, with 1 being the best situation and 7 being the worst situation.
3
As defined in the database, total LFPR implies the fraction of population ages 15–64 that is economi-
cally active to total population ages 15–64 years. Economically active population implies “all people who
supply labor for the production of goods and services during a specified period” (World Bank 2013). Male
and female labor force participation rates follow similar definitions.
4
The variable Polity2 is constructed from Polity, which, in turn, is constructed based on the AUTOC
and the DEMOC variables. The AUTOC and the DEMOC variables range from 0 to 10 with 10 signifying
a “strongly autocratic” or a “strongly democratic” situation, respectively. Both these variables are based on
various components such as openness of executive recruitment, competitiveness of executive recruitment,
constraint on chief executive, and competitiveness of political participation. The Polity variable is con-
structed by subtracting the AUTOC score from the DEMOC score. It ranges from –10 to +10 with the mini-
mum representing a “strongly autocratic” situation and the maximum representing a “strongly democratic”
situation. Polity2 modifies the polity score by converting “standardized authority scores” to conventional
scores that can be used for time-series analysis.
5
The index of political rights assesses the ability of an individual to be able to freely participate in the
political process, the extent to which a person can vote freely in legitimate elections, and the accountability
of representatives to the individual. In a similar manner, civil liberties evaluate the abilities of the individual
to be able to exercise freedom of expression and belief, the freedom to assemble and associate, the extent to
which an individual has access to an “established and equitable system of rule of law,” and finally to be able
to enjoy economic and social freedom that includes “access to economic opportunities and the right to hold
private property.”
Other control variables that are important in explaining LFPR are included
as per the literature. As benchmark controls, we consider GDP per capita and
different measures of educational attainment. GDP per capita is an indicator of
growth and development of a country as well as an indicator of overall well-
being (Gaddis and Klasen 2012). Thus, it should affect LFPR. The level of
educational attainment should also affect LFPR because individuals with
higher levels of education are more likely to find employment (Goldin 1994).
As a benchmark measure of educational attainment, we consider net adjusted
years of primary enrolment from the World Development Indicators 2013
online database (World Bank 2013). As part of the robustness analysis, we
include years of schooling from the Barro and Lee database (integrated in the
World Bank database) as an additional measure. To capture nonlinearity in the
impact of education, we include a squared term for education. The studies of
Psacharopoulos (1985, 1994) and Harmon and Walker (1999) have shown sig-
nificant diminishing returns to education. We also test our results to the inclu-
sion of other control variables such as fertility rates and inflation. Appendix 1
provides the summary statistics, Appendix 2 provides the correlation matrix,
and Appendix 3 describes the variables used in the paper along with their
sources.
Empirical Methodology
Based on our hypothesis, we are interested in the interactive effect of open-
ness and institutions on LFPR for Sub-Saharan countries. Our empirical speci-
fication is as follows
Laborit ¼ b0 þ b1 Openit þ b2 Instit þ b3 ðOpen InstÞit þ b4 X it þ b5 ci þ b6 ht
þ it
ð1Þ
where Laborit implies labor-force participation rate for country i in year t. This
can be the total, male, or female labor force participation rate. While Openit
implies trade openness for country i in year t, Instit signifies the measure of
political institutions for the same. The interaction term is given by Open * Inst.
Xit represents the matrix of control variables, ci represents the vector for time
invariant controls, ht is the vector for time fixed effects, and finally eit represents
the random error term. Our benchmark controls consist of GDP per capita, pri-
mary enrolment, and squared primary enrolment. We are interested in the signs
of the coefficients b1 and b3. The impact of trade openness on the labor force
participation rate is given by:
dLaborit
¼ b1 þ b3 Instit ð2Þ
dOpenit
Depending on the sign and the magnitude of b1 and b3 and the magnitude
dOpenit will be > 0 or < 0. Thus, the estimates will decide whether for
of Instit, dLaborit
different levels of institutional quality, the impact of trade openness on LFPR

is positive or negative.
As part of our baseline specifications, we start with fixed-effect specifica-
tions. We have a panel of forty-eight Sub-Saharan African countries over
the period of 1985 to 2012. We consider five-year6 averages to smooth out
cyclical fluctuations. While fixed effect specifications take care of time-
invariant characteristics present in panel data, the other panel data chal-
lenges are not accounted for in such specifications. Thus, we consider
dynamic panel estimators for our benchmark specifications. We present sys-
tem GMM based dynamic panel estimators for our benchmark results. Dif-
ference-GMM estimators have been used for our robustness analysis. Such
dynamic panel estimators are appropriate to handle panel data challenges
such as the presence of fixed effects, small “T” (fewer time periods), and
large “N” (many countries) panel, panels with independent variables that are
not strictly exogenous, and presence of heteroskedasticity and autocorrelation
within countries (Roodman 2009). Our benchmark results in the form of
system GMM estimates consider all the above-mentioned panel data chal-
lenges. While difference GMM estimators are also constructed to handle
such panel data challenges, system GMM estimates use extra moment con-
ditions while generating instruments and, thus, result in reduced bias and
greater precision. Trade openness7 is treated as an endogenous variable for
all our specifications.
Results
In this section, we present the baseline results first, followed by system GMM
results and further sensitivity analysis. It is, however, helpful to examine the
LFPR of SSA with other regions prior to undertaking the empirical analysis.
6
We consider three-year average for the last period. The periods considered are 1985–1989, 1990–1994,
1995–1999, 2000–2004, 2005–2009, and 2010–2012.
7
Dynamic panel estimators generate their own instruments and, thus, solve the problem of finding
strictly exogenous instruments that are orthogonal to the error term. Higher LFPR can lead to greater trade
openness in a country as it leads to a more competitive market. Thus, trade can suffer from endogeneity
concerns.
Baseline results. Before we start our empirical analysis we provide a chart
that compares SSA to the rest of the world. We present average LFPR, MLPR,
and FLPR over the sample period for different regions in the world in
Figure 6. SSA LFPR are relatively high in comparison to the rest of the world
due to a large proportion of the population employed traditionally in the agri-
cultural sector, around 60 percent (Bigsten and Horton 1997). Therefore, many
workers in SSA may not enter the formal sector. Also, as explained before,
the variation within the region is high. Regions such as East Asia and the
Pacific, and Europe and Central Asia have higher labor-force participation
compared to SSA. Table 1A presents the baseline results in the form of fixed-
effect estimates. Polity2 is considered as the measure of political institution.
As mentioned earlier, we include net adjusted primary enrolment ratios and its
squared term for all the specifications. Column 1 presents results for total
LFPR, column 2 for MLPR, and column 3 for FLPR. The interaction term
Trade*Polity2 is positive and significant for all the specifications implying that
trade openness and political institutions act as complements in terms of their
impact on LFPR for SSA countries. The coefficient on trade openness is posi-
tive and significant for the LFPR and MLPR specifications. Thus, trade open-
ness has a positive impact on total LFPR and MLPR. The squared terms are
not significant. We are interested in the impact of trade openness on LFPR for
different levels of institutional quality. Because Polity2 ranges from –10 to
+10, the coefficients and the magnitude of Polity2 will decide whether the
impact will be negative or positive. We calculate the marginal impacts in our
next section.
It is worth mentioning in this context that while we are interested in the
impact of trade openness on LFPR for different levels of institutional quality,
we might be interested in the impact of institutions on the same, for different
levels of trade openness. As we can see from Table 1A, the coefficient on Poli-
ty2 is negative for all the specifications but not significant. Intuitively, this
implies that institutional quality has a negative impact on LFPR. Yet, the nega-
tive signs should be interpreted in the context of other independent variables that
are assumed to be held constant (specifically assumed to be 0). Such a situation
is not economically meaningful and, thus, it is beyond the focus of this paper.
Table 1B presents the results with an alternate measure of political institu-
tions— political rights. As mentioned before, the index of political rights
ranges from 1 to 7, with 1 representing the best situation and 7 the worst.
Thus, the coefficient of the interaction term is negative and significant imply-
ing that poor institutional quality and higher trade openness act as substitutes
in terms of their impact on LFPR. The poorer the institutional quality, the less
will be the impact of trade on LFPR. On the other hand, countries benefit from
improving their institutional quality. Opening up the country to trade will
FIGURE 6
AVERAGE LABOR FORCE PARTICIPATION RATES FOR DIFFERENT REGIONS
90
80
70
60
50
40
30
20 LFPR
10
0 MLPR
FLPR
definitely enhance LFPR but only if institutions are efficient. With inefficient
political institutions in place, the direct impact is negative, but the interaction
effect turns positive and improves as institutional quality goes up. However, as
we have mentioned, the coefficients on both trade and interaction terms mean
little, unless we calculate the marginal impacts. We calculate the marginal
impact of trade openness in the next section. The sign and significance of the
coefficients of controls are similar to Table 1A.
System GMM results. Table 2A presents our benchmark results in the form
of system GMM estimates. Similar to Table 1A, we have considered Polity2
as the measure of institution. The coefficient of trade openness is positive and
significant in all the specifications, similar to our benchmark findings. The
coefficient of the interaction term, Open * Inst, is positive and significant in
all the specifications. Thus, trade openness and political institutions behave as
complements with regard to their impact on LFPR. Yet, the estimated marginal
effect can only tell us whether the impact is positive or negative. We show
this in Table 2B. Interestingly, we find that educational attainment has a
diminishing impact on LFPR. The linear term is positive and significant but
the squared term is negative and significant. As educational attainment
increases, the positive impact on LFPR (total, male, and female) decreases.
^ and b
b ^ from Table 2A and different values of Polity2 determine dLaborit .
1 3 dOpenit
Following the methodology of Asiedu, Jim, and Nandwa (2011), we calculate
d for each country and then calculate the marginal impact
the means for Inst
at the tenth, twenty-fifth, fiftieth, seventy-fifth, ninetieth, and ninety-fifth
percentiles of the means as well as the mean of Inst.d In order to a give a
TABLE 1A
IMPACT OF TRADE OPENNESS AND POLITY2 ON LABOR FORCE PARTICIPATIONS RATES
(1) (2) (3)

LFPR MLPR FLPR
Trade 0.0186* 0.0265** 0.0110
(0.0106) (0.0107) (0.0167)
Polity2 0.0921 0.0529 0.139
(0.0867) (0.0877) (0.136)
Trade x Polity2 0.00338*** 0.00252** 0.00444***
(0.00104) (0.00106) (0.00164)
Enrolment rate 0.0514 0.0841 0.0114
(0.0570) (0.0577) (0.0896)
(Enrolment rate)2 0.000508 0.000685 0.000238
(0.000441) (0.000446) (0.000692)
GDP per capita 2.94e-05 7.56e-05 0.000110
(0.000100) (0.000101) (0.000157)
Constant 71.57*** 83.23*** 60.29***
(2.180) (2.206) (3.423)
Observations 160 160 160
R-squared 0.216 0.338 0.346
Number of countries 42 42 42
NOTES: All specifications are fixed effect. Period dummies are included in all regressions. Dependent variables include
LFPR, MLPR, and FLPR. Trade represents exports + imports as a percentage of GDP. GDP per capita is gross domestic
product per capita, PPP, 2011 international dollars. Enrolment rate is net primary enrolment rate and we include a square
term of enrolment to capture nonlinearity in the relationship. ***p < 0.01, **p < 0.05, *p < 0.1.
SOURCE: All variables are from World Bank (2013) except Polity 2, which is from Marshall and Gurr (2013).
detailed perspective of the estimated impacts, we provide country names

whose Polity2 score corresponds to the respective percentiles. So, for example,
while Mauritania lies at the tenth percentile (Polity2 score being equal to –5.1)
based on our sample data, Cape Verde is at the ninety-fifth percentile (Polity2
score being equal to 6.6). The column headings denote, for which LFPR the
marginal estimates are calculated.
We find that dLabor
dOpenit is not negative for any Polity2 score except in the case
it
of FLPR at the tenth percentile, for which it is not significant. Overall, this
suggests that trade openness is an important determinant of LFPR. Even in the
presence of poor institutional quality, the impact of trade openness on LFPR is
not diminishing. We can conclude that as institutional quality improves, the
impact of trade openness on LFPR, MLPR, and FLPR is enhanced. But the
magnitudes of the impact vary in all cases. In the case of MLPR, we find that
the impact is significant throughout. For the lower percentiles, the impact is
not significant for LFPR. The impact becomes significant at the fiftieth per-
centile when a country’s Polity2 score almost becomes 0. In the case of FLPR,
the marginal impact is significant at the seventy-fifth percentile when a country
becomes marginally democratic. Also, the estimated impacts for MLPR are
TABLE 1B
IMPACT OF TRADE OPENNESS AND POLITICAL RIGHTS ON LABOR FORCE PARTICIPATIONS RATES
(1) (2) (3)

LFPR MLPR FLPR
Trade 0.0608** 0.0614** 0.0557
(0.0254) (0.0246) (0.0392)
PR 0.567* 0.162 0.829*
(0.302) (0.293) (0.468)
Trade x PR 0.00978** 0.00786** 0.0109*
(0.00405) (0.00393) (0.00627)
Enrolment rate 0.0656 0.0912 0.0349
(0.0600) (0.0582) (0.0928)
(Enrolment rate)2 0.000569 0.000687 0.000359
(0.000464) (0.000450) (0.000718)
GDP per capita 6.24e-06 9.83e-05 6.54e-05
(0.000104) (0.000101) (0.000162)
Constant 69.98*** 83.06*** 58.16***
(2.985) (2.897) (4.620)
R-squared 0.131 0.327 0.297
NOTES: All specifications are fixed effects. Period dummies are included in all regressions. Dependent variables include
LFPR, MLPR, and FLPR. Trade represents exports + imports as a percentage of GDP. GDP per capita is gross domestic
product per capita, PPP, 2011 international dollars. Enrolment rate is net primary enrolment rate and we include a square
term of enrolment to capture nonlinearity in the relationship. ***p < 0.01, **p < 0.05, *p < 0.1.
SOURCE: All variables from World Bank (2013) except PR (which stands for political rights taken from the Freedom House
database; note that Freedom House rates each country on the PR index in the reverse direction to the Polity2 index—a
higher number implies a lower PR).
slightly more than LFPR for some range of Polity2. This might be because the
lower or negative values of FLPR diminish the total impact to some extent.
MLPR benefits more from an improvement in institutional quality. For many
countries, the participation of males compared to females might be higher in
the workforce. Thus, FLPR estimates should always be smaller than MLPR
estimates and the low FLPR might diminish the total impact in some cases. In
terms of economic significance, for example, one standard deviation rise in
trade openness for the Democratic Republic of Congo will lead to a 0.83 per-
centage point increase in total LFPR (the estimated marginal impact of open-
ness on LFPR x standard deviation of Trade openness). For the same standard
deviation increase, Cape Verde’s total LFPR increases by 1.8 percentage
points. Because Cape Verde’s institutional quality is much better than the
Democratic Republic of Congo, it experiences a greater rise in LFPR for a
similar rise in trade openness. The impact is almost similar in the case of
MLPR but lower in the case of FLPR.
In Table 2C, we take a closer look at the percentiles corresponding to
LFPR, MLPR, and FLPR at which the marginal impacts become significant.
TABLE 2A
(1) (2) (3)

LFPR MLPR FLPR
LFPRt1 1.116***
(0.0184)
Trade 0.0261*** 0.0239*** 0.0128
(0.00295) (0.00527) (0.00785)
Polity2 0.279*** 0.117*** 0.286***
(0.0375) (0.0442) (0.0706)
Trade x Polity2 0.00374*** 0.00250*** 0.00292***
(0.000533) (0.000451) (0.000932)
Enrolment rate 0.0648** 0.000452 0.0942***
(0.0305) (0.0507) (0.0365)
(Enrolment rate)2 0.000491** 4.02e-05 0.000837***
(0.000225) (0.000371) (0.000270)
GDP per capita 0.000101 0.000139 7.68e-05
(0.000148) (0.000108) (0.000235)
MLPRt1 1.040***
(0.0320)
FLPRt1 1.100***
(0.0221)
Constant 12.37*** 4.418* 10.12***
(1.689) (2.640) (1.681)
Number of instruments 27 27 27
Sargan test (p value) 0.50 0.24 0.28
Autocorrelation test (p value) 0.11 0.10 0.15
NOTES: All specifications are system GMM estimations. Period dummies are included in all regressions. Dependent variables
include LFPR, MLPR, and FLPR. Trade represents exports + imports as a percentage of GDP. GDP per capita is gross
domestic product per capita, PPP, 2011 international dollars. Enrolment rate is net primary enrolment rate and we include
a squared term of enrolment to capture nonlinearity in the relationship. *** p < 0.01, ** p < 0.05, * p < 0.1.
In the case of LFPR, we find that for countries like Mauritania and Equatorial
Guinea, lying at the fifth to tenth percentile range, the marginal impacts are
not significant. The impact becomes significant in the tenth to fifteenth per-
centile range, more precisely in the thirteenth to fifteenth percentile range.
Countries like Cameroon and Gabon benefit from improvements in institu-
tional quality. In the case of MLPR, the impact is significant for the entire
sample even for countries lying at the fifth percentile. For FLPR, the marginal
impact becomes significant in the fifty-fifth to sixtieth percentile range, more
specifically in the fifty-eighth to sixtieth percentile range.
Table 3A reports the results for political rights. The results are very similar
to those of Table 2A. The coefficient of the interaction term is negative and
significant for all the specifications. Higher numbers mean lower levels of
TABLE 2B
MARGINAL EFFECT OF TRADE OPENNESS ON LABOR FORCE PARTICIPATIONS AT DIFFERENT LEVELS OF
POLITY2
Value of Polity2 Percentile of Polity2 Country LFPR MLPR FLPR

5.06 10th Mauritania 0.007 0.011** 0.001
(0.003) (0.004) (0.007)
3.49 25th Congo, Rep. 0.01** 0.015** 0.003
(0.003) (0.005) (0.007)
0.64 50th Congo, DR 0.023*** 0.022*** 0.010
(0.002) (0.008) (0.007)
1.70 75th Ghana 0.032*** 0.028*** 0.017*
(0.003) (0.006) (0.008)
3.42 90th Madagascar 0.038*** 0.032*** 0.022***
(0.004) (0.006) (0.009)
6.59 95th Cape Verde 0.05*** 0.04*** 0.03***
(0.005) (0.007) (0.011)
0.43 Mean CAR 0.02*** 0.02*** 0.011
(0.002) (0.005) (0.007)
dLFiit
NOTES: dTrade ^ þb
¼b ^ Inst, evaluated at various values of Polity2. Specifically, we estimate dLFiit at the 10th, 25th,
it 1 2 dTradeit
50th, 75th, 90th, 95th and the mean of Polity2 and the estimates from Table 2A. The country names correspond to the
particular percentiles of Polity2 for our sample
political rights. Thus, our conclusions remain unchanged—trade openness and

political institutions act as complements in terms of their impact on LFPR. At
the same time, trade openness also has a positive and significant impact on
LFPR. We report the marginal impacts in Table 3B. Educational attainment
continues to have an impact with diminishing returns on LFPR, MLPR, and
FLPR. The marginal impacts are positive and strongest for the lower per-
centiles or the best state of political rights. As percentiles go up or, in other
words, political rights go down, we find that the magnitude diminishes and
becomes insignificant in the case of LFPR and FLPR. Thus, our conclusion
remains unchanged—better institutional quality helps reap the benefits of trade
openness and, thus, LFPR is enhanced. As institutional quality worsens (higher
values of political rights), the impact of trade openness tends to decline. In
terms of impact, if a country such as Namibia (with a PR score of 2.9) experi-
ences 1 standard deviation (SD) rise in trade openness, then the total LFPR
will go up by 1.08 percentage points. Yet, for Mauritania (with a PR score of
6.12), a similar increase in trade openness will raise LFPR by only 0.25 per-
centage points. This is because compared to Namibia, Mauritania ranks lower
in terms of political rights. The impact is slightly higher in the case of MLPR
and a bit lower in the case of FLPR. Again, this can be due to the higher par-
ticipation of males compared to females in the workforce and thus, the higher
TABLE 2C
MARGINAL EFFECT OF TRADE OPENNESS ON LABOR FORCE PARTICIPATIONS AT DIFFERENT LEVELS OF POLITY2
Value of Percentile LFPR Value of Percentile MLPR Value of Percentile FLPR

Polity2 Polity2 Country Estimates Polity2 Polity2 Country Estimates Polity2 Polity2 Country Estimates
5.48 5th Eq. Guinea 0.0055 5.48 5th Eq. Guinea 0.01** 0.22 55th Burundi 0.012
(0.003) (0.004) (0.007)
5.06 10th Mauritania 0.007 5.06 10th Mauritania 0.11** 0.004 58th Kenya 0.012
(0.003) (0.004) (0.008)
336 / ARUSHA COORAY, NABAMITA DUTTA
4.33 13th Cameroon 0.009** — — — — 0.25 60th Liberia 0.014*

(0.003) (0.008)
AND
4.01 15th Gabon 0.011*** — — — — 0.92 65th Malawi 0.015**

(0.003) (0.008)
NOTES: We take a closer look here as to at which percentiles the impact of trade on labor force participation rates become significant. Thus, we estimate the marginal impacts by disag-
gregating the data even further based on Polity2. We provide different percentiles for LFPR, MLPR, and FLPR based on in what range the impact becomes significant. In the case
of LFPR, the impact becomes significant in between 10th and 15th percentile and to be specific in between 10th and 13th percentile. For MLPR, the marginal impact is always sig-
nificant. Finally, for FLPR, the marginal impact becomes significant in the 55th to 60th percentile range, more precisely in between 58th to 60th percentile.
SUSHANTA MALLICK
TABLE 3A
IMPACT OF TRADE OPENNESS AND POLITICAL RIGHTS ON LABOR FORCE PARTICIPATIONS RATES
(1) (2) (3)

Total MLPR FLPR
LFPRt1 1.124***
(0.0198)
Trade 0.0531*** 0.0983*** 0.0638**
(0.0166) (0.0174) (0.0313)
PR 0.716*** 1.060*** 0.961***
(0.231) (0.192) (0.334)
Trade x PR 0.00741*** 0.0137*** 0.00948*
(0.00287) (0.00283) (0.00503)
Enrolment rate 0.0622** 0.0297 0.129***
(0.0311) (0.0494) (0.0377)
(Enrolment rate)2 0.000477** 0.000340 0.000993***
(0.000207) (0.000349) (0.000251)
GDP per capita 7.52e-05 0.000108 9.22e-05
(0.000188) (9.01e-05) (0.000253)
MLPRt1 1.058***
(0.0367)
FLPRt1 1.071***
(0.0183)
Constant 15.60*** 11.39*** 14.66***
(3.025) (3.707) (3.392)
a square term of enrolment to capture nonlinearity in the relationship. ***p < 0.01, **p < 0.05, *p < 0.1.
SOURCE: All variables are from World Bank (2013) except PR (which stands for political rights taken from the Freedom
House database; note that Freedom House rates each country on the PR index in the reverse direction to the Polity2
index—a higher number implies a lower PR).
values of MLPR are negated to some extent by lower FLPR values making
LFPR less in magnitude relative to MLPR.
Similar to Table 2B, we take a closer look at the percentiles of PR in
Table 3C. The marginal impacts tend to become insignificant for the higher
percentiles that signify worse levels of PR. For example, in the case of LFPR,
the impact becomes insignificant between the eightieth and eighty-fifth per-
centiles, specifically between the eightieth and eighty-third percentiles. In the
case of MLPR, the impact is almost significant for the entire range except in
the ninety-eighth percentile. The marginal estimates for FLPR lose significance
between the sixtieth and sixty-second percentile.
Sensitivity Analysis
In order to check the robustness of our findings, we consider alternate
model specifications,8 test our results to the inclusion of controls, and consider
alternate proxies of political institutions. We start with the alternate measure of
political institutions—civil liberties. The results are presented in Table 4A and
they are very similar to the results for political rights. The coefficient of trade
openness retains its sign and significance. The coefficient of the interaction
term is negative and significant suggesting that trade openness and low levels
of civil liberties act as substitutes. The higher the score of civil liberty (signi-
fying inferior quality of institutions), the lower is the impact of trade openness
on LFPR. The nonlinear impact of educational attainment is retained. The mar-
ginal estimates are presented in Table 4B. Our conclusion remains unaltered—
as civil liberties worsen, the effect of trade openness on LFPR tends to
decline. Beyond the seventy-fifth percentile, the impact of LFPR, MLPR, and
FLPR becomes insignificant.
In Table 5A, we test the robustness of our findings using different compo-
nents of Polity2 as an alternate measure of political institutions. The individual
subcomponents we consider are competitiveness of executive selection (Com-
petitiveness or XRCOMP), constraints on chief executive (Constraints or
XCONST), regulation of executive transfers (Regulation or XRREG), and
openness of executive recruitment (Openness or XROPEN). Competitiveness
refers to “the extent that prevailing models of advancement give subordinates
equal opportunities to become subordinates” (Marshall and Gurr 2013). The
categories are “selection,” “dual/transitional,” and “election,” with higher
scores implying greater competitiveness. XCONST refers to the degree of
institutionalized constraints relating to the decision-making powers of chief
executives. XROPEN signifies openness in executive recruitment with the cat-
egories being closed, dual executive designation, dual executive election, and
open. Higher numbers represent greater openness. Finally, XRREG signifies
regulation of chief executive recruitment and the categories are unregulated,
designation/transitional, and regulated. The results are presented in Table 5A.
The sign of the interaction term is positive and significant for all the
8
It is worth mentioning here that as we estimate the marginal impact of trade openness for different levels
of institutional quality, it is possible to estimate the marginal impact of institutions for different levels of trade
openness. The marginal impact of institutions will be given by dLabordInstit ¼ b2 þ b3 Openit . Again, depending on
it
the sign and the magnitude of b2 and b3 as well as the magnitude of Openit, dLabor dInstit \0 or dInstit [ 0. Though
it dLaborit
we are more interested in the impact of trade openness on labor-force participation rates, we do estimate dLabor dInstit
it
for different levels of trade openness. We follow a similar methodology. Keeping space constraints in mind,
we do not report the findings but they are available on request. We find that, in the presence of lower trade
openness, political institutions have a negative impact on labor force participation rates. This impact is signifi-
cant as well. As a country opens up to trade, institutions improve and thereby have a positive impact on LFPR.
TABLE 3B
MARGINAL EFFECT OF TRADE OPENNESS ON LABOR FORCE PARTICIPATION AT DIFFERENT LEVELS OF
POLITICAL RIGHTS
Value of PR Percentile of PR Country LFPR MLPR FLPR

2.9 10th Namibia 0.03*** 0.05*** 0.036***
(0.008) (0.01) (0.017)
4.04 25th Zambia 0.023*** 0.04*** 0.025***
(0.006) (0.006) (0.012)
5.10 50th Liberia 0.02*** 0.02*** 0.015**
(0.004) (0.004) (0.008)
6.14 75th Mauritania 0.007* 0.014*** 0.006
(0.04) (0.003) (0.006)
6.36 90 Chad 0.005 0.011** 0.003
(0.004) (0.003) (0.006)
6.66 95th Eritrea 0.003 0.00 0.0004
(0.005) (0.004) (0.007)
4.88 Mean Tanzania 0.02*** 0.03*** 0.017**
(0.004) (0.004) (0.018)
dLFiit
NOTES dTrade ^ þb
¼b ^ Inst., evaluated at various values of PR. Specifically, we estimate dLFiit at the 10th, 25th, 50th,
it 1 2 dTradeit
75th, 90th, 95th and the mean of PR employing the estimates from Table 3A. The country names correspond to the par-
ticular percentiles of PR for our sample.
subcomponents except in the case of XROPEN. The positive sign suggests that
as a political system gets more competitive, is more regulated, has greater con-
straints, and has a competitive election process, trade openness can improve
LFPR more. The nonlinearity in the impact of educational attainment is
retained. We report the results only for LFPR. The results for MLPR and
FLPR are similar. The results are available on request.
The marginal estimates are presented in Table 5B. We do not present the
marginal estimates for XROPEN because the interaction term is not significant.
For all three subcomponents, the marginal estimates are significant for all
countries except those lying in the tenth-percentile range. The marginal esti-
mates for MLPR and FLPR are not reported and they are available on request.
Next we test our results to the alternate model specification—difference
GMM specification. Though system GMM estimates result in greater precision,
the estimates might be subject to some bias due to too many instruments being
generated relative to difference GMM estimates. Thus, we also check our
results with difference GMM specifications. Table 6A presents the results for
Polity2. Keeping space constraints in mind, we only report the results for Poli-
ty2 as the measure of political institution. As we can see from Table 6A, the
interaction term, Trade x Polity2, is positive and significant for all the specifi-
cations strengthening our benchmark results. The diminishing return to educa-
tional attainment is only significant in the case of FLPR. The marginal impacts
are reported in Table 6B. Again, similar to benchmark results, the marginal
TABLE 3C
MARGINAL EFFECT OF TRADE OPENNESS ON LABOR FORCE PARTICIPATION AT DIFFERENT LEVELS OF POLITICAL RIGHTS
LFPR MLPR FLPR

Value of PR Percentile PR Country Estimates Value of PR Percentile PR Country Estimates Value of PR Percentile PR Country Estimates
6.12 75th Swaziland 0.0077** 6.66 95th Sudan 0.0069* 5.1 50th Liberia 0.015**
(0.004) (0.004) (0.008)
6.21 80th Guinea 0.0071* 6.70 97th Somalia 0.0067* 5.41 60th Gabon 0.012*
(0.041) (0.003) (0.007)
6.27 83rd — 0.0066 6.75 98th — 0.006 5.54 62th Ethiopia 0.011
(0.004) (0.003) (0.007)
AND
6.32 85th Rwanda 0.0062

(0.004)
NOTES: We take a closer look here as to at which percentiles the impact of trade on labor force participation rates become significant. Thus, we estimate the marginal impacts by disag-
gregating the data even further based on political rights (PR). We provide different percentiles for LFPR, MLPR, and FLPR based on in what range the impact becomes significant.
In the case of LFPR, the impact loses significance between the 80th and 83rd percentiles. Note that for PR, a higher value implies a lower PR. For MLPR, the marginal impact is
almost always significant. Finally, for FLPR, the marginal impact becomes insignificant in the 60th to 65th percentile range, more precisely in between 60th to 62nd percentiles.
SUSHANTA MALLICK
TABLE 4A
IMPACT OF TRADE OPENNESS AND CIVIL LIBERTIES ON LABOR FORCE PARTICIPATION RATES
(1) (2) (3)

LFPR MLPR FLPR
LFPRt1 1.132***
(0.0227)
Trade 0.0770*** 0.0984*** 0.0666**
(0.0128) (0.0202) (0.0293)
CL 1.187*** 1.246*** 1.206***
(0.214) (0.250) (0.421)
Trade*CL 0.0126*** 0.0164*** 0.0100*
(0.00250) (0.00381) (0.00549)
Enrolment rate 0.0861*** 0.00206 0.135***
(0.0239) (0.0466) (0.0336)
(Enrolment rate)2 0.000592*** 0.000145 0.00109***
(0.000174) (0.000338) (0.000244)
GDP per capita 1.30e-05 6.84e-05 8.17e-05
(0.000168) (8.33e-05) (0.000253)
MLPRt1 1.049***
(0.0382)
FLPRt1 1.077***
(0.0253)
Constant 19.39*** 11.79*** 16.04***
(2.646) (3.587) (3.720)
a squared term of enrolment to capture nonlinearity in the relationship. ***p < 0.01, **p < 0.05, *p < 0.1.
impact is significant for the entire sample in the case of MLPR. The estimates
are stronger compared to LFPR or FLPR due to higher male participation in
the workforce compared to females. In the case of LFPR and FLPR, the mar-
ginal impact becomes significant from seventy-fifth percentile onward.
Our next robustness tests consist of testing our results to the inclusion of
additional controls. The additional controls included are years of schooling,
inflation (GDP deflator), and fertility rate (number of births per woman).
Years of schooling is included as a measure of access to education. Thus,
we include two different measures in the same specifications—one measuring
access to education and the other educational attainment. Inflation is incorpo-
rated to capture the Phillips curve relation (Perry et al. 1970). Bloom et al.
TABLE 4B
MARGINAL EFFECT OF TRADE OPENNESS ON LABOR FORCE PARTICIPATION AT DIFFERENT LEVELS OF
CIVIL LIBERTIES
Value of CL Percentile of CL Country LFPR MLPR FLPR

3.2 10th South Africa 0.036*** 0.045*** 0.034***
(0.006) (0.009) (0.012)
4.1 25th Gambia 0.025*** 0.031*** 0.025***
(0.004) (0.006) (0.008)
4.6 50th Malawi 0.019*** 0.022*** 0.020***
(0.004) (0.005) (0.006)
5.4 75th Ethiopia 0.009** 0.009** 0.012**
(0.004) (0.004) (0.004)
5.8 90 Cameroon 0.004 0.003 0.008
(0.004) (0.005) (0.005)
6.7 95th Eq. Guinea 0.007 0.01 0.0006
(0.006) (0.007) (0.009)
4.7 Mean Congo Republic 0.017*** 0.021*** 0.019***
(0.004) (0.005) (0.005)
dLFiit
NOTES: dTrade ^ þb
¼b ^ Inst, evaluated at various values of CL (civil liberties). Specifically, we estimate dLFiit at the
it 1 2 dTradeit
10th, 25th, 50th, 75th, 90th, 95th, and the mean of CL employing the estimates from Table 4A. The country names cor-
respond to the particular percentiles of CL for our sample.
(2009) show that a fall in fertility leads to an increase in female labor force
participation. For both education variables, we include a squared term. Trade
x Polity2 is positive and significant in the case of LFPR and FLPR. Educa-
tional attainment is not significant anymore. But we can see that similar to
educational attainment, years of schooling also exhibit diminishing returns.
The marginal estimates are not reported but they provide us with the same
conclusions.
Finally, we test our results to the inclusion of GINI index. The variable
GINI index is considered from the World Development Indicators 2013 data-
base (World Bank 2013). Based on this database, the index measures the
extent to which the distribution of income in a country is skewed away from
a perfectly equal distribution. Specifically, it measures the distance between
the Lorenz curve and hypothetical line of absolute equality. It varies from 0
to 100 with 100 representing perfect inequality. Higher income inequality
could affect LFPR. Households in lower income groups are more likely to
increase their labor supply reducing their leisure time, while households in
upper income groups are more likely to reduce their participation in the labor
market. So a country with higher income inequality is more likely to have
lower LFPR. Keeping space constraints in mind, we have not reported the
results but they are available on request. The results are consistent with our
previous findings.
TABLE 5A
IMPACT OF TRADE OPENNESS AND COMPONENTS OF POLITY2 ON LABOR FORCE PARTICIPATION RATES
(1) (2) (3) (4)

*** *** ***
LFPRt1 1.100 1.104 1.099 1.110***
(0.0161) (0.0165) (0.0158) (0.0138)
Trade 0.00771 0.00275 0.0688*** 0.00493
(0.00618) (0.00438) (0.0195) (0.00471)
Constraints 0.595***
(0.155)
Trade x Constraints 0.00674***
(0.00141)
Enrolment rate (primary) 0.0953*** 0.0431 0.0864*** 0.0506*
(0.0336) (0.0324) (0.0310) (0.0281)
(Enrolment rate (primary))2 0.000706*** 0.000373 0.000595*** 0.000429**
(0.000241) (0.000229) (0.000226) (0.000211)
GDP per capita 0.000251* 6.42e-05 4.94e-05 8.13e-05
(0.000132) (0.000128) (0.000149) (0.000119)
Comp. 0.952***
(0.163)
Trade x Comp. 0.00911***
(0.00219)
Reg. 2.193***
(0.485)
Trade x Reg 0.0319***
(0.00718)
Open 0.439***
(0.168)
Trade x Open 0.00173
(0.00189)
Constant 8.699*** 8.646*** 5.320*** 8.889***
(1.349) (1.440) (1.865) (1.169)
Observations 133 133 133 133
Number of countries 42 42 42 42
Number of instruments 27 27 27 27
Sargan test (p value) 0.14 0.53 0.72 0.48
Autocorrelation test (p value) 0.11 0.13 0.11 0.10
a squared term of enrolment to capture nonlinearity in the relationship. ***p < 0.01, **p < 0.05, *p < 0.1.
Summary and Concluding Observations

Despite the extensive literature focusing on the role of institutions in the
process of development, the interactive effect of trade openness and political
institutions on labor force participation has been given little attention. This is a
critical issue in the context of low-income economies such as Africa, where
TABLE 5B
MARGINAL EFFECT OF TRADE OPENNESS ON LABOR FORCE PARTICIPATION AT DIFFERENT LEVELS OF POLITY2 COMPONENTS
Percentile Value of Percentile

Value of XCONST XCONST Estimates XCOMP XCOMP Estimates Value of XRREG Percentile XRREG Estimates
1.9 10th 0.005 0.08 10th 0.003 1.58 10th 0.005
(0.004) (0.004) (0.004)
2.4 25th 0.008** 0.76 25th 0.01** 1.96 25th 0.008**
(0.004) (0.004) (0.004)
3.1 50th 0.013*** 1.22 50th 0.014*** 2 50th 0.013***
(0.003) (0.003) (0.003)
4.12 75th 0.020*** 1.66 75th 0.017*** 2.25 75th 0.020***

(0.004) (0.003) (0.004)
5 90th 0.026*** 2.18 90th 0.022*** 2.71 90th 0.026***
AND
(0.004) (0.003) (0.004)

5.9 95th 0.032*** 2.59 95th 0.026*** 2.95 95th 0.032***
(0.004) (0.004) (0.004)
3.4 Mean 0.015*** 1.25 Mean 0.014*** 2.07 Mean 0.015***
(0.003) (0.003) (0.003)
dLFiit dLFiit
NOTES: dTrade it
¼b
^ þb
1
^ Inst, evaluated at various values of Polity2 components—XCONST, XCOMP, and XREG. Specifically, we estimate
2 dTradeit at the 10th, 25th, 50th, 75th,
90th, 95th and the means of XCONST, XCOMP, and XREG employing the estimates from Table 5A.
SUSHANTA MALLICK
TABLE 6A
(1) (2) (3)

LFPR MLPR FLPR
LFPRt1 0.329***
(0.0939)
Trade 0.00695 0.0282*** 0.0120
(0.00609) (0.00774) (0.00885)
Polity2 0.0573 0.00232 0.157**
(0.0491) (0.0751) (0.0674)
Trade x Polity2 0.00197*** 0.00173*** 0.00257***
(0.000559) (0.000601) (0.000847)
Enrolment rate 0.00832 0.0298 0.120***
(0.0300) (0.0354) (0.0438)
(Enrolment rate)2 0.000131 9.26e-05 0.000934***
(0.000228) (0.000288) (0.000345)
GDP per capita 0.000438*** 0.000727*** 0.000108
(0.000157) (0.000125) (0.000134)
MLPRt1 0.358***
(0.111)
FLPRt1 0.716***
(0.0833)
Constant 48.74*** 50.07*** 13.58**
(7.389) (9.116) (5.808)
a square term of enrolment to capture nonlinearity in the relationship. ***p < 0.01, **p < 0.05, *p < 0.1.
there is need for job creation following policy reforms, but fragile political
institutions remain a key constraint for development. The central objective of
this paper therefore has been to empirically examine the impact of trade open-
ness and institutions on LFPR in Sub-Saharan Africa.
We apply both fixed-effects and system-GMM panel estimation methods
that address potential biases associated with panel data estimations. The paper
reports a robust relationship that with openness to trade, labor force participa-
tion is higher in a democratic system relative to an authoritarian political sys-
tem as reflected through the Polity2 variable. Further, as democracy, political
rights, and civil liberties improve, trade openness has an enhanced impact on
total, male, and female LFPR. These findings have important policy implica-
tions for labor-market policies in Africa. In countries where openness has not
TABLE 6B
MARGINAL EFFECT OF TRADE OPENNESS ON LABOR FORCE PARTICIPATIONS AT DIFFERENT LEVELS OF
POLITY2
Value of Polity2 Percentile of Polity2 Country LFPR MLPR FLPR

5.06 10 th
Mauritania 0.003 0.019*** 0.001
(0.007) (0.006) (0.007)
3.49 25th Congo, Rep. 0.001 0.022*** 0.003
(0.007) (0.006) (0.007)
0.64 50th Congo, DR 0.006 0.027*** 0.010
(0.006) (0.008) (0.009)
1.70 75th Ghana 0.01* 0.03*** 0.016*
(0.006) (0.008) (0.01)
3.42 90 Madagascar 0.014** 0.034*** 0.021**
(0.006) (0.009) (0.01)
6.59 95th Cape Verde 0.02***
(0.007)
0.43 Mean CAR 0.006 0.027*** 0.010
(0.006) (0.005) (0.009)
dLFiit
NOTES: dTrade ^ þb
¼b ^ Inst:, evaluated at various values of Polity2. Specifically, we estimate dLFiit at the 10th, 25th,
it 1 2 dTradeit
50th, 75th, 90th, 95th and the mean of Polity2 and the estimates from Table 6A. The country names correspond to the
particular percentiles of Polity2 for our sample.
had the desired effects on the labor market, those governments need to put in
place proper institutions to promote employment and improve efficiency of
labor.
Our results tend to support an important complementary role for trade open-
ness and political institutions in enhancing LFPR. Policies to increase admis-
sion of workers to the trade sector are important. Political institutions,
however, are extremely important for enhancing the positive effects of trade
openness. Opening up a country to trade will improve LFPR only if institu-
tions are efficient, particularly in the case of females. The interaction effect
turns positive and improves as institutional quality goes up. The results sug-
gest that policy makers should focus on improving institutional quality to
enhance economic efficiency and LFPR, which will contribute to the overall
development of Sub-Saharan Africa.
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APPENDIX 1
SUMMARY STATISTICS
Variable Obs. Mean Std. Dev. Min Max

Labor force participation (female) 225 80.35 8.16 61.94 95.52
Labor force participation (male) 225 63.45 17.37 19.23 91.47
Labor force participation (total) 225 71.80 11.13 48.40 90.93
Trade 260 71.94 35.98 14.40 201.56
Polity2 268 0.24 5.60 10.00 10.00
Political rights 268 4.86 1.76 1.00 7.00
Civil liberties 268 4.64 1.43 1.00 7.00
Primary enrolment (total) 181 62.43 22.35 16.27 97.95
Years of schooling (total) 192 3.76 2.25 0.37 9.43
GDP per capita 256 2387.76 3477.74 133.19 26,394.00
APPENDIX 2
CORRELATION COEFFICIENT
Labor Force Labor Force Labor Force Primary Years of

Participation Participation Participation Political Civil Enrolmen Schooling GDP per
(Female) (Male) (Total) Trade Polity2 Rights Liberties (Total) (Total) capita
Labor force 1
participation
(female)
Labor force 0.43* 1
participation
(male)
Labor force 0.70* 0.94* 1
participation
(total)
Trade 0.14* 0.13 0.15* 1
Polity2 0.03 0.12 0.11 0.08 1
Political rights 0.02 0.07 0.07 0.04 0.84* 1
Civil liberties 0.02 0.08 0.08 0.06 0.76* 0.91* 1
Primary 0.24* 0.10 0.17* 0.32* 0.41* 0.46* 0.48* 1
enrolment
(Total)
Years of 0.21* 0.08 0.15 0.44* 0.27* 0.33* 0.43* 0.76* 1
schooling
(total)
GDP per capita 0.12 0.12 0.13 0.40* 0.06 0.12 0.12 0.45* 0.65* 1
*5% level of significance
View publication stats
APPENDIX 3
DATA DESCRIPTION
Variable Description
Trade Openness This is the sum of exports and imports of goods and services as a measure of gross domestic product. Source: World Bank
(2013).
Polity2 An index of political decentralization that ranges from –10 (complete dictatorship) to +10 (complete democracy), which the
Polity IV Project calls its “Polity 2” measure. The index is computed by subtracting a country’s democracy score (which
ranges from 0 to +10) from its autocracy score (which ranges from 0 to –10). Source: Marshall and Gurr (2013).
Political Rights An index that measures the extent of political rights in a country. It is based on factors like participate freely in the political
process, vote freely in legitimate elections, and have representives that are accountable to them. It ranges from 1 to 7, with
higher scores representing less political rights. Source: Freedom House (2014)
Civil Liberties An index that measures the extent of civil liberties in a country. It ranges from 1 to 7, with higher scores representing less
political rights. Source: Freedom House (2014)
GDP per capita Gross domestic product per capita (PPP constant 2005 international dollar). Source: World Bank (2013).
Years of Schooling Average years of total schooling completed among people 25+. Source: World Bank (2013)
AND
Adjusted net enrolment rate, Total is the total number of pupils of the official primary school age group who are enrolled at primary or secondary
total, primary education levels, expressed as a percentage of the corresponding population. Source: World Bank (2013)
GINI Index Measures the extent to which the distribution of income (or, in some cases, consumption expenditure) among individuals
or households within an economy deviates from a perfectly equal distribution.
Fertility Rate Total fertility rate represents the number of children that would be born to a woman if she were to live to the end of her
childbearing years and bear children in accordance with current age-specific fertility rates. Source: World Bank (2013)
Inflation Inflation as measured by the annual growth rate of the GDP implicit deflator shows the rate of price change in the
economy as a whole. The GDP implicit deflator is the ratio of GDP in current local currency to GDP in constant local currency.
Source: World Bank (2013)
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Article in Industrial Relations A Journal of Economy and Society · April 2017

Arusha Cooray Nabamita Dutta

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ARUSHA COORAY, NABAMITA DUTTA, and SUSHANTA

Trade liberalization is usually expected to lead to greater economic activity

-7 Mauritania Gabon Botswana Senegal

openness and political institutions on LFPR in Africa. Following on from the

different levels of institutional quality, the impact of trade openness on LFPR

(1) (2) (3)

detailed perspective of the estimated impacts, we provide country names

(1) (2) (3)

(1) (2) (3)

Value of Polity2 Percentile of Polity2 Country LFPR MLPR FLPR

political rights. Thus, our conclusions remain unchanged—trade openness and

Value of Percentile LFPR Value of Percentile MLPR Value of Percentile FLPR

4.33 13th Cameroon 0.009** — — — — 0.25 60th Liberia 0.014*

4.01 15th Gabon 0.011*** — — — — 0.92 65th Malawi 0.015**

(1) (2) (3)

Value of PR Percentile of PR Country LFPR MLPR FLPR

LFPR MLPR FLPR

6.32 85th Rwanda 0.0062

(1) (2) (3)

Value of CL Percentile of CL Country LFPR MLPR FLPR

(1) (2) (3) (4)

Summary and Concluding Observations

Percentile Value of Percentile

4.12 75th 0.020*** 1.66 75th 0.017*** 2.25 75th 0.020***

(0.004) (0.003) (0.004)

(1) (2) (3)

Value of Polity2 Percentile of Polity2 Country LFPR MLPR FLPR

Variable Obs. Mean Std. Dev. Min Max

Labor Force Labor Force Labor Force Primary Years of

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4.01 15th Gabon 0.011* — — — — 0.92 65th Malawi 0.015

4.12 75th 0.020* 1.66 75th 0.017* 2.25 75th 0.020***