Effects of Trade and Services Liberalization on Wage Inequality in India

40 Pages Posted: 31 Aug 2011

See all articles by Aashish Mehta

Aashish Mehta

University of California, Santa Barbara (UCSB)

Rana Hasan

Asian Development Bank; University of Maryland - Department of Economics

Date Written: August 1, 2011


We examine the effects of trade and services liberalization on wage inequality in India. We find that labor reallocations and wage shifts attributable to liberalization account for at most 29% of the increase in inequality between 1993 and 2004, and that effects of services reforms are many times larger than those of trade liberalization. In contrast, 30%-66% of the increase in wage inequality is due to changes in industry wages and skill premiums that cannot be empirically linked to liberalization. These results suggest that if liberalization did, in fact, contribute significantly to increased inequality, the bulk of its effects do not linger in interindustry wage and skill premiums but are subsumed by general equilibrium effects. Studies of the liberalization – inequality relationship that focus on differences in employment and wage outcomes across industries, or on tradable goods alone, may therefore only be exploring the tip of the iceberg.

Keywords: Trade Liberalization, Services Liberalization, Inequality India, India, IND, Economics Working Paper No. 268

JEL Classification: D31, F16, J31

Suggested Citation

Mehta, Aashish Sunil and Hasan, Rana, Effects of Trade and Services Liberalization on Wage Inequality in India (August 1, 2011). Asian Development Bank Economics Working Paper Series No. 268. Available at SSRN: https://ssrn.com/abstract=1920004 or http://dx.doi.org/10.2139/ssrn.1920004

Aashish Sunil Mehta (Contact Author)

University of California, Santa Barbara (UCSB) ( email )

Santa Barbara, CA 93106
United States

HOME PAGE: http://www.global.ucsb.edu/people/aashish-mehta

Rana Hasan

Asian Development Bank ( email )

6 ADB Avenue, Mandaluyong City 1550
Metro Manila

University of Maryland - Department of Economics ( email )

College Park, MD 20742
United States
808-944-7590 (Phone)
808-944-7399 (Fax)

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