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Trade liberalization and unemployment: Theory and evidence from India

  • Hasan, Rana
  • Mitra, Devashish
  • Ranjan, Priya
  • Ahsan, Reshad N.

A widely held view among the public is that trade liberalization increases unemployment. Using state and industry-level unemployment and trade protection data from India, we find no evidence of any unemployment increasing effect of trade reforms. In fact, our state-level analysis reveals that urban unemployment declines with trade liberalization in states with flexible labor markets and larger employment shares in net exporter industries. Moreover, our industry-level analysis indicates that workers in industries experiencing greater reductions in trade protection were less likely to become unemployed, especially in net export industries. Our results can be explained within a theoretical framework incorporating trade and search-generated unemployment and some institutional features of the Indian economy.

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

Volume (Year): 97 (2012)
Issue (Month): 2 ()
Pages: 269-280

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Handle: RePEc:eee:deveco:v:97:y:2012:i:2:p:269-280
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