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Trade Liberalization and Poverty Reduction: New Evidence from Indian States

Author

Listed:
  • J.Salcedo Cain
  • Rana Hasan
  • Devashish Mitra

Abstract

As is widely acknowledged, the incidence of poverty in India has declined steadily over the last several decades. What is debated, however, is the pace at which poverty has declined and its relationship with India's economic reforms. In particular, a key concern among policymakers and researchers alike is that trade liberalization undertaken in the early 1990s may have slowed the progress made in reducing poverty. In this paper, we update our previous econometric analysis on the links between trade liberalization and poverty reduction in India. By incorporating measures of poverty based on the 2004-05 consumer expenditure survey carried out by India's National Sample Survey Organisation, we are able to sidestep the controversy-ridden poverty measures based on the 1999-2000 survey. Our new results are in line with the earlier ones in Hasan, Mitra and Ural (2007): States, and regions within states, that were more exposed to trade liberalization on account of their employment structures did not experience slower reduction in poverty; on the contrary, to the extent that we find a statistically significant relationship between trade liberalization and poverty reduction, the evidence points to faster poverty reduction in states and regions experiencing greater increases in exposure to trade. Moreover, this relationship is typically stronger in states with more flexible labor regulations, better quality transportation infrastructure, and more developed financial systems.

Suggested Citation

  • J.Salcedo Cain & Rana Hasan & Devashish Mitra, 2010. "Trade Liberalization and Poverty Reduction: New Evidence from Indian States," Working Papers 3333, School of International and Public Affairs, Columbia University, revised Nov 2010.
  • Handle: RePEc:ecq:wpaper:3333
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    File URL: http://indianeconomy.columbia.edu/sites/default/files/working_papers/wp_2010-3_v2.pdf
    File Function: First version, 2011
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    References listed on IDEAS

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    1. Ann Harrison, 2007. "Globalization and Poverty," NBER Books, National Bureau of Economic Research, Inc, number harr06-1.
    2. Rana Hasan & Devashish Mitra & K.V. Ramaswamy, 2007. "Trade Reforms, Labor Regulations, and Labor-Demand Elasticities: Empirical Evidence from India," The Review of Economics and Statistics, MIT Press, vol. 89(3), pages 466-481, August.
    3. Petia Topalova, 2007. "Trade Liberalization, Poverty and Inequality: Evidence from Indian Districts," NBER Chapters,in: Globalization and Poverty, pages 291-336 National Bureau of Economic Research, Inc.
    4. 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.
    5. Dani Rodrik & Arvind Subramanian & Francesco Trebbi, 2004. "Institutions Rule: The Primacy of Institutions Over Geography and Integration in Economic Development," Journal of Economic Growth, Springer, vol. 9(2), pages 131-165, June.
    6. Romain Wacziarg & Karen Horn Welch, 2008. "Trade Liberalization and Growth: New Evidence," World Bank Economic Review, World Bank Group, vol. 22(2), pages 187-231, June.
    7. Irwin, Douglas A. & Tervio, Marko, 2002. "Does trade raise income?: Evidence from the twentieth century," Journal of International Economics, Elsevier, vol. 58(1), pages 1-18, October.
    8. Gupta,Poonam & Hasan, Rana & Kumar, Utsav, 2009. "Big Reforms but Small Payoffs: Explaining the Weak Record of Growth in Indian Manufacturing," India Policy Forum, National Council of Applied Economic Research, vol. 5(1), pages 59-123.
    9. Eric V. Edmonds & Nina Pavcnik & Petia Topalova, 2010. "Trade Adjustment and Human Capital Investments: Evidence from Indian Tariff Reform," American Economic Journal: Applied Economics, American Economic Association, vol. 2(4), pages 42-75, October.
    10. Asha Sundaram, 2015. "The Impact of Trade Liberalization on Micro Enterprises: Do Banks Matter? Evidence from Indian Manufacturing," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 77(6), pages 832-853, December.
    11. Ravallion, Martin & Datt, Gaurav, 1996. "How Important to India's Poor Is the Sectoral Composition of Economic Growth?," World Bank Economic Review, World Bank Group, vol. 10(1), pages 1-25, January.
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    13. Rana Hasan & M.G. Quibria & Yangseon Kim, 2003. "Poverty and Economic Freedom: Evidence from Cross-Country Data," Economics Study Area Working Papers 60, East-West Center, Economics Study Area.
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    Cited by:

    1. Arvind Panagariya & Megha Mukim, 2014. "A Comprehensive Analysis of Poverty in India," Asian Development Review, MIT Press, vol. 31(1), pages 1-52, March.
    2. Sen Gupta, Abhijit & Hasan, Rana & Lamba, Sneha, 2014. "Growth, Structural Change, and Poverty Reduction: Evidence from India," MPRA Paper 55247, University Library of Munich, Germany.
    3. Arun Jaitley, 2018. "Economic Survey 2017: Volume I, Chapter 5: Is there a “Late Converger Stall†in Economic Development? Can India Escape it?," Working Papers id:12444, eSocialSciences.
    4. Devashish Mitra, 2016. "Trade liberalization and poverty reduction," IZA World of Labor, Institute for the Study of Labor (IZA), pages 272-272, June.
    5. Gaddis, Isis & Pieters, Janneke, 2012. "Trade Liberalization and Female Labor Force Participation: Evidence from Brazil," IZA Discussion Papers 6809, Institute for the Study of Labor (IZA).

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    Keywords

    India; growth; poverty; political reforms;

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