Multi Fibre Arrangement and Wage Inequality: Firm and State‐Level Evidence from India and a Theoretical Model

21 Pages Posted: 12 Jul 2017

See all articles by Mausumi Kar

Mausumi Kar

Women's Christian College, Kolkata

Saibal Kar

Centre for Studies in Social Sciences, Calcutta; Institute of Labor Economics (IZA)

Date Written: July 2017

Abstract

The phased elimination of Multi Fibre Arrangements (MFA) for textile and apparel has been one of the most compelling trade policy reforms that removed a system of bilateral quotas. The reform brought in significant changes in the industrial structures for exporters from the south, including India. Has the labour‐intensive high‐employment textile and clothing industry in India benefited from this global move towards freer trade? For India, the industry has witnessed unprecedented market concentration of export‐oriented firms. Firm‐level empirical estimate illustrates that workers in the export‐oriented firms in India are adversely affected due to withdrawal of quota. Accumulation of net fixed assets and growth of sales impart positive impact on firm‐level wages that cannot outweigh negative impact due to fall in exports. We also find negative impact of profit on aggregate wage bill for the industry with firms spread over 11 major states in India. We show that the mean deviation of industry‐level wage is positively and significantly associated with mean deviation of the number of factories at the state level and negatively with profit. Finally, a brief analytical exercise obtains conditions under which joint withdrawal of quota and import tariff could raise the aggregate labour income in developing countries, in general.

Suggested Citation

Kar, Mausumi and Kar, Saibal, Multi Fibre Arrangement and Wage Inequality: Firm and State‐Level Evidence from India and a Theoretical Model (July 2017). The World Economy, Vol. 40, Issue 7, pp. 1473-1493, 2017. Available at SSRN: https://ssrn.com/abstract=3000645 or http://dx.doi.org/10.1111/twec.12437

Mausumi Kar (Contact Author)

Women's Christian College, Kolkata ( email )

6 Greek Church Row
Kolkata, 700 026
India

Saibal Kar

Centre for Studies in Social Sciences, Calcutta ( email )

R-1, Baishnabghata Patuli Township
Calcutta, 700 094
India
91-33-2462 7252 (Phone)
91-33-2462 6183 (Fax)

HOME PAGE: http://www.cssscal.org

Institute of Labor Economics (IZA) ( email )

P.O. Box 7240
Bonn, D-53072
Germany

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