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The effect of trade policy reforms on labour markets: evidence from India

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  • Uma Karmbhampati
  • Pravin Krishna
  • Devashish Mitra

Abstract

This paper investigates the labour market impact of the 1991 trade reforms in India using a detailed panel data set on firms in five different import competing industries. We have two main results. First, we find only a small and insignificant effect of the reforms on employment - overall and in each of the five import competing industries. Second, we investigate the relationship between labour demand and mark-ups and find that there is a significant negative relationship between mark-ups and the demand for labour - overall and in four of the five industries studied. This provides evidential support for 'pro-competitive' effects of trade reforms on labour markets as suggested by the theory: trade liberalization increases the demand elasticity perceived by firms and induces them to reduce mark-ups and increase their output, thus (in direct contradiction to the predictions of competitive models of trade) inducing an increase in the demand for labour which may at least partially offset the reduction in labour demand caused by other factors.

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File URL: http://www.tandfonline.com/doi/abs/10.1080/09638199700000017
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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal The Journal of International Trade & Economic Development.

Volume (Year): 6 (1997)
Issue (Month): 2 ()
Pages: 287-297

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Handle: RePEc:taf:jitecd:v:6:y:1997:i:2:p:287-297

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Cited by:
  1. Bushra Yasmin & Aliya H. Khan, 2011. "Trade Openness: New Evidence for Labor-Demand Elasticity in Pakistan's Manufacturing Sector," Lahore Journal of Economics, Department of Economics, The Lahore School of Economics, vol. 16(2), pages 55-85, Jul-Dec.
  2. repec:iza:izadps:dp1084 is not listed on IDEAS
  3. Ilham Haouas & Mahmoud Yagoubi, 2004. "Trade liberalization and demand labor elasticities : evidence from Tunisia," Documents de travail 94, Groupe d'Economie du Développement de l'Université Montesquieu Bordeaux IV.
  4. Krishna, Pravin & Mitra, Devashish & Chinoy, Sajjid, 2001. "Trade liberalization and labor demand elasticities: evidence from Turkey," Journal of International Economics, Elsevier, vol. 55(2), pages 391-409, December.
  5. Johannes Fedderke & Yongcheol Shin, 2004. "Trade, Technology and Wage Inequality in the South African Manufacturing Sectors," ESE Discussion Papers 106, Edinburgh School of Economics, University of Edinburgh.
  6. Paolo Epifani, 2002. "Trade Liberalization, Firm Performance and Labor Market Outcomes in the Developing World What Can We Learn From Micro-Level Data?," KITeS Working Papers 138, KITeS, Centre for Knowledge, Internationalization and Technology Studies, Universita' Bocconi, Milano, Italy, revised Feb 2003.
  7. Bushra Yasmin & Aliya H. Khan, 2005. "Trade Liberalisation and Labour Demand Elasticities: Empirical Evidence for Pakistan," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 44(4), pages 1067-1089.

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