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Liberalisation and Wage Inequality In India

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  • Rashmi Banga

Abstract

This paper is a pioneering attempt in estimating the impact of three major components of liberalisation on labour productivity and wage inequality in the Indian manufacturing sector, namely FDI, trade and technological progress. The study has shown that these components have led to an improvement in labour productivity in the post- reforms period. However, they have a differential impact on the wages of skilled and unskilled workers. Wage inequality is found to have increased overtime and this has been caused mainly by higher FDI and skill-biased technological progress. An important policy implication is that `to maximise the benefits of FDI, it is important to channelise it towards export-oriented industries, which use larger number of low-skilled workers`. The paper also emphasises on the importance of research and development (R&D) to make technological progress in less skill-biased Indian industries.

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Bibliographic Info

Paper provided by eSocialSciences in its series Working Papers with number id:805.

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Date of creation: Jan 2007
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Handle: RePEc:ess:wpaper:id:805

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Keywords: Manufacturing sector; Skills;

References

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  1. Paolo Figini & Holger Görg, 1999. "Multinational companies and wage inequality in the host country: The case of Ireland," Review of World Economics (Weltwirtschaftliches Archiv), Springer, Springer, vol. 135(4), pages 594-612, December.
  2. Gera, S & Masse, P, 1996. "Employment Performance in the Knowledge-Based Economy," Gouvernement du Canada - Industrial Organization, Gouvernement du Canada - Industry Canada 14, Gouvernement du Canada - Industry Canada.
  3. Djankov, Simeon & Hoekman, Bernard M, 2000. "Foreign Investment and Productivity Growth in Czech Enterprises," World Bank Economic Review, World Bank Group, World Bank Group, vol. 14(1), pages 49-64, January.
  4. Paul Krugman, 2000. "Crises : the price of globalization?," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, Federal Reserve Bank of Kansas City, pages 75-106.
  5. Frank Barry & Holger Görg & Eric Strobl, 2001. "Foreign Direct Investment, Agglomerations and Demonstration Effects - An Empirical Investigation," Working Papers, School Of Economics, University College Dublin 200104, School Of Economics, University College Dublin.
  6. Alcala, Francisco & Ciccone, Antonio, 2001. "Trade and Productivity," CEPR Discussion Papers, C.E.P.R. Discussion Papers 3095, C.E.P.R. Discussion Papers.
  7. Stephen Machin & John Van Reenen, 1998. "Technology And Changes In Skill Structure: Evidence From Seven Oecd Countries," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 113(4), pages 1215-1244, November.
  8. James McDonald & Harry Bloch, 1999. "The Spillover Effects of Industrial Action on Firm Profitability," Review of Industrial Organization, Springer, Springer, vol. 15(2), pages 183-200, September.
  9. Peter Gottschalk & Timothy M. Smeeding, 1997. "Cross-National Comparisons of Earnings and Income Inequality," Journal of Economic Literature, American Economic Association, American Economic Association, vol. 35(2), pages 633-687, June.
  10. Berman, Eli & Machin, Stephen, 2000. "Skill-Based Technology Transfer around the World," Oxford Review of Economic Policy, Oxford University Press, Oxford University Press, vol. 16(3), pages 12-22, Autumn.
  11. Blomstrom, Magnus & Wolff, E.N., 1989. "Multinational Corporations And Productivity Convergence In Mexico," Working Papers, C.V. Starr Center for Applied Economics, New York University 89-28, C.V. Starr Center for Applied Economics, New York University.
  12. Markusen, James R. & Venables, Anthony J., 1999. "Foreign direct investment as a catalyst for industrial development," European Economic Review, Elsevier, Elsevier, vol. 43(2), pages 335-356, February.
  13. n/a, 2000. "Incorporating lag order selection uncertainty in parameter inference for AR models," NIESR Discussion Papers, National Institute of Economic and Social Research 175, National Institute of Economic and Social Research.
  14. Katz, Lawrence F. & Autor, David H., 1999. "Changes in the wage structure and earnings inequality," Handbook of Labor Economics, Elsevier, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 26, pages 1463-1555 Elsevier.
  15. Driffield, Nigel & Taylor, Karl, 2000. "FDI and the Labour Market: A Review of the Evidence and Policy Implications," Oxford Review of Economic Policy, Oxford University Press, Oxford University Press, vol. 16(3), pages 90-103, Autumn.
  16. Yih-Chyi Chuang & Chi-Mei Lin, 1999. "Foreign direct investment, R&D and spillover efficiency: Evidence from Taiwan's manufacturing firms," Journal of Development Studies, Taylor & Francis Journals, Taylor & Francis Journals, vol. 35(4), pages 117-137.
  17. Davies, Stephen W & Lyons, Bruce R, 1991. "Characterising Relative Performance: The Productivity Advantage of Foreign Owned Firms in the UK," Oxford Economic Papers, Oxford University Press, Oxford University Press, vol. 43(4), pages 584-95, October.
  18. Wood, Adrian, 1997. "Openness and Wage Inequality in Developing Countries: The Latin American Challenge to East Asian Conventional Wisdom," World Bank Economic Review, World Bank Group, World Bank Group, vol. 11(1), pages 33-57, January.
  19. Taylor, Karl Bernard, 2000. "Uk Earnings Dispersion: An Industry And Regional Perspective," ERSA conference papers, European Regional Science Association ersa00p8, European Regional Science Association.
  20. Liu, Xiaming & Parker, David & Vaidya, Kirit & Wei, Yingqi, 2001. "The impact of foreign direct investment on labour productivity in the Chinese electronics industry," International Business Review, Elsevier, Elsevier, vol. 10(4), pages 421-439, August.
  21. Markusen, James R & Venables, Anthony J, 1997. "The Role of Multinational Firms in the Wage-Gap Debate," Review of International Economics, Wiley Blackwell, Wiley Blackwell, vol. 5(4), pages 435-51, November.
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Citations

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Cited by:
  1. Gupta, Manash Ranjan & Dutta, Priya Brata, 2010. "Skilled-unskilled wage inequality: A general equilibrium analysis," Research in Economics, Elsevier, Elsevier, vol. 64(4), pages 247-263, December.
  2. Gupta, Manash Ranjan & Dutta, Priya Brata, 2010. "Skilled-unskilled wage inequality, nontraded good and endogenous supply of skilled labour: A theoretical analysis," Economic Modelling, Elsevier, Elsevier, vol. 27(5), pages 923-934, September.
  3. Sahu, Pritish Kumar, 2010. "FDI, wage inequality and employment in emerging economies: recent evidence from Indian manufacturing," MPRA Paper, University Library of Munich, Germany 35149, University Library of Munich, Germany.
  4. Hashim, Danish & Banga, Rashmi, 2009. "Impact of Trade on Labour Productivity and Wage Inequality in India," MPRA Paper, University Library of Munich, Germany 35200, University Library of Munich, Germany.
  5. Eckhard Siggel & Pradeep Agrawal, 2009. "The Impact Of Economic Reforms On Indian Manufacturers : Evidence From A Small Sample Survey," Development Economics Working Papers, East Asian Bureau of Economic Research 22930, East Asian Bureau of Economic Research.

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