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The effects of trade and services liberalization on wage inequality in India

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  • Mehta, Aashish
  • Hasan, Rana
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    Abstract

    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 the 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 inter-industry 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.

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    Bibliographic Info

    Article provided by Elsevier in its journal International Review of Economics & Finance.

    Volume (Year): 23 (2012)
    Issue (Month): C ()
    Pages: 75-90

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    Handle: RePEc:eee:reveco:v:23:y:2012:i:c:p:75-90

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    Web page: http://www.elsevier.com/locate/inca/620165

    Related research

    Keywords: India; Wage inequality; Trade liberalization; Services liberalization; Decomposition;

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    Cited by:
    1. Pi, Jiancai & Zhou, Yu & Yin, Jun, 2013. "International factor mobility, monopolistic competition, and wage inequality," Economic Modelling, Elsevier, vol. 33(C), pages 326-332.
    2. Pi, Jiancai & Zhou, Yu, 2014. "Foreign capital, public infrastructure, and wage inequality in developing countries," International Review of Economics & Finance, Elsevier, vol. 29(C), pages 195-207.
    3. Kamal Vatta & Takahiro Sato, 2012. "Indian Labour Markets and Returns to Education, 1983 to 2009-10," Discussion Paper Series DP2012-33, Research Institute for Economics & Business Administration, Kobe University.

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