- Written by Dr Francis Odhuno, a Senior Research Fellow at the PNG National Research Institute, and Dr Diana Ngui, a Senior Lecturer of Econometrics and Statistics at Kenyatta University, Kenya Dr Francis Odhuno, a Senior Research Fellow at the PNG National Research Institute, and Dr Diana Ngui, a Senior Lecturer of Econometrics and Statistics at Kenyatta University, Kenya
Papua New Guinea (PNG) has relied on international trade for much of its exemplary economic growth performance in recent years. With the exception of only 2003, the value of the country’s exports exceeded the value of imports by bigger margins between 2000 and 2018. But the value of the country’s international trade (imports and exports), as a share of the total value of goods and services produced each year to 2018, has been declining. The monetary value of international trade declined from 85 percent in 2000 to about 58 percent in 2018.
Since a comprehensive labour maket assessment was last published in 1982, labour market indiators are often based on census and household surveys. The 2011 Census, for example, estimated that 2.6 percent of the PNG labour force were looking for jobs. While unemployment rate in PNG has not exceeded 3 percent since the 1990s. The number of people out of work has been declining.
But a declining unemployment rate in PNG is not something to celebrate. Majority of the people are engaged in informal and subsistence activities, while formal employment barely accounts for more than 10 percent of total employment. Still, the decline in both international trade and formal employment must be worrying for the country’s policy makers.
Why declining value of trade is a worrying matter
The declining share (in monetary terms) of international trade in the country’s economic output is a concern because about 80,000 young people leave schools and colleges in PNG every year but only few find wage employment. Yet, in theory, international trade is expected to contribute to better employment outcomes. International trade should boost economic growth which, in turn, should lead to increase in employment.
If PNG produces and exports goods and services that require abundant labour, the increase in demand for labour should reduce the country’s unemployment rate.
How international trade affect employment outcomes in PNG
In the research paper ‘Employment effect of international trade in Papua New Guinea’ using quarterly data collected by the Bank of Papua New Guinea (BPNG) from 2005 to 2018. (The full research paper is available at www.pngnri.org/publications/). We found the following:
- Increasing imports results in immediate increase in sectoral employment. PNG import a lot of consumer goods like fuel and rice which only last in the short term. Hence there is only an increase in retail sector employment in the short term.
- Increasing exports also increases sectoral employment but not immediately. More labour engaged to extract export products like mineral with a lag. Increasing exports signals the lucrative nature of the extractive sector. As PNG opens up more new mines, increase in employment should be expected.
- Increasing imports has an immediate effect of increasing employment in the regions. Imports of intermediate and capital goods have positive effects on employment in the regions where the capital projects are to be located.
- Increasing exports has short term positive effects on regional employment although the effect is negative in the long term. The extractive sector is known to create more jobs in the regions during the construction phase; but employs only a few specialists in the production phase when the sector becomes the dominant export revenue generator.
First, policies that promote the expansion of exports in PNG should be encouraged as exports have an employment expansion effect, at least in the short run. Such policies should target exports in labour intensive sectors such as agriculture, forestry, fisheries and manufacturing. Secondly, if the effects of imports on employment are to be sustained, increased importation of consumables should be discouraged. But importation of capital goods which will enhance production of value-added products for export and for domestic market should be encouraged.
This article was first published in the Post-Courier’s 18 February 2021 edition and on its website’s commentaries and features page.