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The effects of trade and services liberalization on wage inequality in India

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  • Mehta, Aashish
  • Hasan, Rana

Abstract

We examine the effects of trade and services liberalization on wage inequality in India. We find that labor reallocations and wage shifts attributable to liberalization account for at most 29% of the increase in inequality between 1993 and 2004, and that the effects of services reforms are many times larger than those of trade liberalization. In contrast, 30–66% of the increase in wage inequality is due to changes in industry wages and skill premiums that cannot be empirically linked to liberalization. These results suggest that if liberalization did, in fact, contribute significantly to increased inequality, the bulk of its effects do not linger in inter-industry wage and skill premiums but are subsumed by general equilibrium effects. Studies of the liberalization-inequality relationship that focus on differences in employment and wage outcomes across industries, or on tradable goods alone, may therefore only be exploring the tip of the iceberg.

Suggested Citation

  • Mehta, Aashish & Hasan, Rana, 2012. "The effects of trade and services liberalization on wage inequality in India," International Review of Economics & Finance, Elsevier, vol. 23(C), pages 75-90.
    • Handle: RePEc:eee:reveco:v:23:y:2012:i:c:p:75-90
    DOI: 10.1016/j.iref.2011.10.007
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    References listed on IDEAS

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    Cited by:

    1. Barua, Alokesh & Pant, Manoj, 2014. "Trade and wage inequality: A specific factor model with intermediate goods," International Review of Economics & Finance, Elsevier, vol. 33(C), pages 172-185.
    2. Kapri, Kul, 2016. "Productivity, firm size and trade liberalization in a partner country: Evidence from Korean firm-level data," International Review of Economics & Finance, Elsevier, vol. 45(C), pages 572-583.
    3. repec:eee:wdevel:v:97:y:2017:i:c:p:313-329 is not listed on IDEAS
    4. Pi, Jiancai & Zhou, Yu, 2014. "Foreign capital, public infrastructure, and wage inequality in developing countries," International Review of Economics & Finance, Elsevier, vol. 29(C), pages 195-207.
    5. Aradhna Aggarwal & Nagesh Kumar, 2012. "Structural Change, Industrialization and Poverty Reduction: The Case of India," Development Papers 1206, United Nations Economic and Social Commission for Asia and the Pacific (ESCAP) South and South-West Asia Office.
    6. Zhang, Jingjing, 2015. "International factor mobility, elasticity of substitution in production and the skilled–unskilled wage gap," International Review of Economics & Finance, Elsevier, vol. 35(C), pages 122-129.
    7. Sun, Sizhong & Anwar, Sajid, 2015. "Taxation of labour, product varieties and skilled–unskilled wage inequality: Short run versus long run," International Review of Economics & Finance, Elsevier, vol. 38(C), pages 250-257.
    8. Anwar, Sajid & Sun, Sizhong, 2015. "Taxation of labour income and the skilled–unskilled wage inequality," Economic Modelling, Elsevier, vol. 47(C), pages 18-22.
    9. Pan, Lijun, 2014. "The impacts of education investment on skilled–unskilled wage inequality and economic development in developing countries," Economic Modelling, Elsevier, vol. 39(C), pages 174-181.
    10. Jiancai Pi & Yu Zhou, 2015. "The impacts of corruption on wage inequality and rural–urban migration in developing countries," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 54(3), pages 753-768, May.
    11. Pi, Jiancai & Zhou, Yu & Yin, Jun, 2013. "International factor mobility, monopolistic competition, and wage inequality," Economic Modelling, Elsevier, vol. 33(C), pages 326-332.
    12. Njikam, Ousmanou, 2016. "Trade liberalization, labor market regulations and labor demand in Cameroon," International Review of Economics & Finance, Elsevier, vol. 43(C), pages 525-541.
    13. Zhang, Jingjing, 2013. "Factor mobility and skilled–unskilled wage inequality in the presence of internationally traded product varieties," Economic Modelling, Elsevier, vol. 30(C), pages 579-585.
    14. LEE, Jong-Wha & Wie, Dainn, 2017. "Wage Structure and Gender Earnings Differentials in China and India," World Development, Elsevier, vol. 97(C), pages 313-329.
    15. Prabir Bhattacharya & Takahiro Sato, 2017. "Estimating Regional Returns to Education in India," Discussion Paper Series DP2017-09, Research Institute for Economics & Business Administration, Kobe University.
    16. Kamal Vatta & Takahiro Sato, 2012. "Indian Labour Markets and Returns to Education, 1983 to 2009-10," Discussion Paper Series DP2012-33, Research Institute for Economics & Business Administration, Kobe University.

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