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The effect of trade policy reforms on labour markets: evidence from India

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  • Uma Karmbhampati
  • Pravin Krishna
  • Devashish Mitra

Abstract

This paper investigates the labour market impact of the 1991 trade reforms in India using a detailed panel data set on firms in five different import competing industries. We have two main results. First, we find only a small and insignificant effect of the reforms on employment - overall and in each of the five import competing industries. Second, we investigate the relationship between labour demand and mark-ups and find that there is a significant negative relationship between mark-ups and the demand for labour - overall and in four of the five industries studied. This provides evidential support for 'pro-competitive' effects of trade reforms on labour markets as suggested by the theory: trade liberalization increases the demand elasticity perceived by firms and induces them to reduce mark-ups and increase their output, thus (in direct contradiction to the predictions of competitive models of trade) inducing an increase in the demand for labour which may at least partially offset the reduction in labour demand caused by other factors.

Suggested Citation

  • Uma Karmbhampati & Pravin Krishna & Devashish Mitra, 1997. "The effect of trade policy reforms on labour markets: evidence from India," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 6(2), pages 287-297.
  • Handle: RePEc:taf:jitecd:v:6:y:1997:i:2:p:287-297
    DOI: 10.1080/09638199700000017
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    References listed on IDEAS

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    1. Levinsohn, James, 1993. "Testing the imports-as-market-discipline hypothesis," Journal of International Economics, Elsevier, vol. 35(1-2), pages 1-22, August.
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    4. Noel Gaston & Daniel Trefler, 1994. "The Role of International Trade and Trade Policy in the Labour Markets of Canada and the United States," The World Economy, Wiley Blackwell, vol. 17(1), pages 45-62, January.
    5. Grossman, Gene M., 1986. "Imports as a cause of injury: The case of the U.S. steel industry," Journal of International Economics, Elsevier, vol. 20(3-4), pages 201-223, May.
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    Cited by:

    1. Paolo Epifani, 2003. "Trade liberalization, Firm Performances and Labor Market Outcomes in the Developing World, what Can We Learn From Micro-Level Data?," Rivista italiana degli economisti, Società editrice il Mulino, issue 3, pages 455-486.
    2. Nihar Shembavnekar, 2019. "Economic Reforms, Labour Markets and Formal Sector Employment: Evidence from India," Economies, MDPI, Open Access Journal, vol. 7(2), pages 1-42, April.
    3. Bushra Yasmin & Aliya H. Khan, 2011. "Trade Openness: New Evidence for Labor-Demand Elasticity in Pakistan's Manufacturing Sector," Lahore Journal of Economics, Department of Economics, The Lahore School of Economics, vol. 16(2), pages 55-85, Jul-Dec.
    4. Devashish Mitra, 2019. "Responses to Trade Opening: Evidence and Lessons from Asia," Working Papers id:12977, eSocialSciences.
    5. Rana Hasan, 2001. "The Impact of Trade and Labor Market Regulations on Employment and Wages: Evidence from Developing Countries," Economics Study Area Working Papers 32, East-West Center, Economics Study Area.
    6. Bushra Yasmin & Aliya H. Khan, 2005. "Trade Liberalisation and Labour Demand Elasticities: Empirical Evidence for Pakistan," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 44(4), pages 1067-1089.
    7. Johannes Fedderke & Yongcheol Shin & Prabhat Vaze, 2003. "Trade, Technology and Wage Inequality in the South African Manufacturing Sectors," ESE Discussion Papers 106, Edinburgh School of Economics, University of Edinburgh.
    8. Rana Hasan & Lan Chen, 2003. "Trade and Workers: Evidence from the Philippines," Economics Study Area Working Papers 61, East-West Center, Economics Study Area.
    9. Amitava K. Dutt & J. Mohan Rao, 2000. "Globalization and its Social Discontents: The Case of India," SCEPA working paper series. SCEPA's main areas of research are macroeconomic policy, inequality and poverty, and globalization. 2000-06, Schwartz Center for Economic Policy Analysis (SCEPA), The New School.
    10. Devashish Mitra, 2001. "Trade Liberalization, Labor Markets and Imperfect Competition," Economics Study Area Working Papers 29, East-West Center, Economics Study Area.
    11. Haouas, Ilham & Yagoubi, Mahmoud, 2004. "Trade Liberalization and Labor-Demand Elasticities: Empirical Evidence from Tunisia," IZA Discussion Papers 1084, Institute of Labor Economics (IZA).
    12. Krishna, Pravin & Mitra, Devashish & Chinoy, Sajjid, 2001. "Trade liberalization and labor demand elasticities: evidence from Turkey," Journal of International Economics, Elsevier, vol. 55(2), pages 391-409, December.
    13. Ilham Haouas & Mahmoud Yagoubi, 2004. "Trade liberalization and demand labor elasticities : evidence from Tunisia," Documents de travail 94, Groupe d'Economie du Développement de l'Université Montesquieu Bordeaux IV.

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