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Industrial de-licensing, trade liberalization, and skill upgrading in India

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  • Chamarbagwala, Rubiana
  • Sharma, Gunjan

Abstract

We investigate the relationship between industrial de-licensing, trade liberalization, and skill upgrading during the 1980s and 1990s among manufacturing plants in India. We use a unique dataset on India's industrial licensing regime to test whether industrial de-licensing during the 1980s and 1990s played a role in skill upgrading, as measured by the employment and wagebill shares of white-collar workers. In addition, we assess the relative contribution of industrial de-licensing and trade liberalization to skill upgrading. We identify two main channels through which industrial de-licensing affects skill upgrading: capital- and output-skill complementarities. Using both difference-in-differences as well as regression discontinuity techniques, we find two important results. First, after controlling for the size-based exemption rule that determined whether or not a plant faced licensing restrictions, industrial de-licensing during the 1980s appears to have increased the relative demand for skilled workers via capital- and output-skill complementarities. Capital- and output-skill complementarities exist for plants in both licensed and de-licensed industries but were stronger in de-licensed industries during the 1980s, prior to India's massive trade liberalization reforms in 1991. Second, regardless of de-licensing, capital- and output-skill complementarities are generally weaker after trade was liberalized during the early 1990s. Together, capital- and output-skill complementarities contributed 75% (57%) and 31% (29%), respectively, of the growth in the employment and wagebill shares of white-collar workers in de-licensed (licensed) industries before trade was liberalized. After trade liberalization, these contributions were smaller. This suggests that trade liberalization may not have played a major role in raising the relative demand for skilled labor during the early 1990s.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Development Economics.

Volume (Year): 96 (2011)
Issue (Month): 2 (November)
Pages: 314-336

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Handle: RePEc:eee:deveco:v:96:y:2011:i:2:p:314-336

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Web page: http://www.elsevier.com/locate/devec

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Keywords: Capital-skill complementarities Industrial de-licensing Trade liberalization India;

References

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Citations

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Cited by:
  1. Seker, Murat, 2011. "Effects of licensing reform on firm innovation : evidence from India," Policy Research Working Paper Series 5876, The World Bank.
  2. Alessandrini, Michele & Fattouh, Bassam & Ferrarini, Benno & Scaramozzino, Pasquale, 2011. "Tariff liberalization and trade specialization: Lessons from India," Journal of Comparative Economics, Elsevier, vol. 39(4), pages 499-513.
  3. Ghosh, Saibal, 2013. "Do economic reforms matter for manufacturing productivity? Evidence from the Indian experience," Economic Modelling, Elsevier, vol. 31(C), pages 723-733.
  4. Albert Bollard & Peter Klenow & Gunjam Sharma, 2013. "India's Mysterious Manufacturing Miracle," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 16(1), pages 59-85, January.
  5. Prabal De & Priya Nagaraj, 2014. "Productivity and firm size in India," Small Business Economics, Springer, vol. 42(4), pages 891-907, April.
  6. Fernandes, Ana M. & Sharma, Gunjan, 2012. "Together we stand ? agglomeration in Indian manufacturing," Policy Research Working Paper Series 6062, The World Bank.

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