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Liberalisation and Wage Inequality In India

  • Rashmi Banga

This paper is a pioneering attempt in estimating the impact of three major components of liberalisation on labour productivity and wage inequality in the Indian manufacturing sector, namely FDI, trade and technological progress. The study has shown that these components have led to an improvement in labour productivity in the post- reforms period. However, they have a differential impact on the wages of skilled and unskilled workers. Wage inequality is found to have increased overtime and this has been caused mainly by higher FDI and skill-biased technological progress. An important policy implication is that `to maximise the benefits of FDI, it is important to channelise it towards export-oriented industries, which use larger number of low-skilled workers`. The paper also emphasises on the importance of research and development (R&D) to make technological progress in less skill-biased Indian industries.

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Date of creation: Jan 2007
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Handle: RePEc:ess:wpaper:id:805
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  18. Florence Hubert & Nigel Pain, 2000. "Inward Investment and Technical Progress in the UK Manufacturing Sector," OECD Economics Department Working Papers 268, OECD Publishing.
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