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Import Competition, Formalization, and the Role of Contract Labor

Author

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  • Pavel Chakraborty
  • Rahul Singh
  • Vidhya Soundararajan

Abstract

Does higher import competition increase formalization and aggregate productivity? Exploiting plausibly exogenous variation from Chinese imports, we provide empirical causal evidence that higher imports increases the share of formal manufacturing enterprise employment in India. This formal share increase is due to both the rise in formal-enterprise employment driven by high-productivity firms, and a fall in informal-enterprise employment. The labor reallocation is enabled by the formal firms’ hiring of contract workers, who do not carry stringent firing costs. Overall, Chinese import competition increased formal-sector employment share by 3.7 percentage points, and aggregate labor productivity by 2.87 percent, between the years 2000–2001 and 2005–2006.

Suggested Citation

  • Pavel Chakraborty & Rahul Singh & Vidhya Soundararajan, 2024. "Import Competition, Formalization, and the Role of Contract Labor," The World Bank Economic Review, World Bank, vol. 38(4), pages 741-771.
    • Handle: RePEc:oup:wbecrv:v:38:y:2024:i:4:p:741-771.
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    File URL: http://hdl.handle.net/10.1093/wber/lhae007
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    Cited by:

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    2. Tanaka, Kiyoyasu & Greaney, Theresa M., 2024. "Trade and employment in the formal and informal sectors: A natural experiment from Cambodia," Journal of Asian Economics, Elsevier, vol. 90(C).

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    Keywords

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    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
    • F66 - International Economics - - Economic Impacts of Globalization - - - Labor

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