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Trade liberalization and labor's slice of the pie: Evidence from Indian firms

Listed author(s):
  • Ahsan, Reshad N.
  • Mitra, Devashish

We examine the impact of trade reforms initiated in 1991 on labor's share in revenue among a sample of Indian firms. Theoretically, trade reforms will affect this share by reducing firm-level price–cost markups as well as the bargaining power of workers. A simple model suggests that these changes can have ambiguous effects on firm-level labor share and that the net effect of trade reforms will depend on the labor intensity of production. Using firm-level data from India, our empirical results suggest that trade liberalization led to an increase in labor's share in revenue for small, labor-intensive firms but a reduction in this share in the case of larger, less labor-intensive firms. These results are robust to controlling for alternative sources of heterogeneity and to the use of long-lagged tariffs as instruments. We also find that trade liberalization, on average, led to a decline in the bargaining power of workers.

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

Volume (Year): 108 (2014)
Issue (Month): C ()
Pages: 1-16

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Handle: RePEc:eee:deveco:v:108:y:2014:i:c:p:1-16
DOI: 10.1016/j.jdeveco.2013.12.011
Contact details of provider: Web page: http://www.elsevier.com/locate/devec

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