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Trade Reforms, Labor Regulations, and Labor-Demand Elasticities: Empirical Evidence from India

  • Rana Hasan

    (Asian Development Bank and East-West Center)

  • Devashish Mitra

    (Syracuse University, NBER, and IZA)

  • K.V. Ramaswamy

    (Indira Gandhi Institute for Development Research)

Using industry-level data disaggregated by states, this paper finds a positive impact of trade liberalization on (the absolute values of) labor demand elasticities in the Indian manufacturing sector. The magnitudes of these elasticities turn out to be negatively related to protection levels that vary across industries and over time. Furthermore, we find that these elasticities are not only larger in size for Indian states with more flexible labor regulations, they are also impacted there to a larger degree by trade reforms. Finally, we find that the reforms have led to a reduction in the share of labor in total output and value added, possibly due to the reduction in the bargaining power of workers. Copyright by the President and Fellows of Harvard College and the Massachusetts Institute of Technology.

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Article provided by MIT Press in its journal The Review of Economics and Statistics.

Volume (Year): 89 (2007)
Issue (Month): 3 (August)
Pages: 466-481

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Handle: RePEc:tpr:restat:v:89:y:2007:i:3:p:466-481
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  1. Timothy Besley & Robin Burgess, 2002. "Can labour regulation hinder economic performance? Evidence from India," LSE Research Online Documents on Economics 3779, London School of Economics and Political Science, LSE Library.
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  8. Slaughter, Matthew J., 2001. "International trade and labor-demand elasticities," Journal of International Economics, Elsevier, vol. 54(1), pages 27-56, June.
  9. Harrison, Ann & Hanson, Gordon, 1999. "Who gains from trade reform? Some remaining puzzles," Journal of Development Economics, Elsevier, vol. 59(1), pages 125-154, June.
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  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.
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