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Trade liberalization and unemployment: Theory and evidence from India

Author Info

Listed author(s):
  • Hasan, Rana
  • Mitra, Devashish
  • Ranjan, Priya
  • Ahsan, Reshad N.

Abstract

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
DOI: 10.1016/j.jdeveco.2011.04.002
Contact details of provider: Web page: http://www.elsevier.com/locate/devec

Keywords: Search unemployment; Protection; Trade reforms; Labor markets; India;

Find related papers by JEL classification:

  • F10 - International Economics - - Trade - - - General
  • F14 - International Economics - - Trade - - - Empirical Studies of Trade
  • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
  • J6 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers
  • O19 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - International Linkages to Development; Role of International Organizations
  • O53 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Asia including Middle East

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  1. Petia Topalova, 2010. "Factor Immobility and Regional Impacts of Trade Liberalization: Evidence on Poverty from India," American Economic Journal: Applied Economics, American Economic Association, vol. 2(4), pages 1-41, October.
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  17. Hasan, Rana & Mitra, Devashish & Ural, Beyza P., 2007. "Trade Liberalization, Labor-Market Institutions, and Poverty Reduction: Evidence from Indian States," India Policy Forum, National Council of Applied Economic Research, vol. 3(1), pages 71-122.
  18. Aditya Bhattacharjea, 2006. "Labour Market Regulation and Industrial Performance in India--A Critical Review of the Empirical Evidence," Working papers 141, Centre for Development Economics, Delhi School of Economics.
  19. Kaivan Munshi & Mark R. Rosenzweig, 2005. "Why is Mobility in India so Low? Social Insurance, Inequality, and Growth," CID Working Papers 121, Center for International Development at Harvard University.
  20. Davidson, Carl & Martin, Lawrence & Matusz, Steven, 1999. "Trade and search generated unemployment," Journal of International Economics, Elsevier, vol. 48(2), pages 271-299, August.
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