Trade Liberalization and Wage Inequality: Evidence from India

21 Pages Posted: 31 Mar 2008

See all articles by Utsav Kumar

Utsav Kumar

Asian Development Bank

Prachi Mishra

International Monetary Fund (IMF) - Research Department

Abstract

We evaluate empirically the impact of the dramatic 1991 trade liberalization in India on the industry wage structure. The empirical strategy uses variation in industry wage premiums and trade policy across industries and over time. In contrast to most earlier studies on developing countries, we find a strong, negative, and robust relationship between changes in trade policy and changes in industry wage premiums over time. The results are consistent with liberalization-induced productivity increases at the firm level, which get passed on to industry wages. We also find that trade liberalization has led to decreased wage inequality between skilled and unskilled workers in India. This is consistent with the magnitude of tariff reductions being relatively larger in sectors with a higher proportion of unskilled workers.

Suggested Citation

Kumar, Utsav and Mishra, Prachi, Trade Liberalization and Wage Inequality: Evidence from India. Review of Development Economics, Vol. 12, Issue 2, pp. 291-311, May 2008. Available at SSRN: https://ssrn.com/abstract=1113943 or http://dx.doi.org/10.1111/j.1467-9361.2007.00388.x

Utsav Kumar (Contact Author)

Asian Development Bank ( email )

6 ADB Avenue
Central and West Asia Department
Mandaluyong City
Philippines

HOME PAGE: http://works.bepress.com/kumarutsav/

Prachi Mishra

International Monetary Fund (IMF) - Research Department ( email )

700 19th Street NW
Washington, DC 20431
United States

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