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

  • Rana Hasan

    ()

    (Asian Development Bank)

  • Devashish Mitra

    ()

    (Department of Economics, Maxwell School of Citizenship and Public Affairs, Syracuse University)

  • K.V. Ramaswamy

    ()

    (IGIDR)

This paper finds a positive impact of trade liberalization on labor-demand elasticities in the Indian manufacturing sector using industry-level data disaggregated by states. 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 higher for Indian states with flexible labor regulations where they are also impacted more by trade reforms. Finally, we find that after the reforms, volatility in productivity and output gets translated into larger wage and employment volatility, theoretically a possible consequence of larger labor-demand elasticities.

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Paper provided by East-West Center, Economics Study Area in its series Economics Study Area Working Papers with number 59.

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Length: 55 pages
Date of creation: Jun 2003
Date of revision:
Handle: RePEc:ewc:wpaper:wp59
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  1. Griliches, Zvi & Hausman, Jerry A., 1986. "Errors in variables in panel data," Journal of Econometrics, Elsevier, vol. 31(1), pages 93-118, February.
  2. 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.
  3. Rodrik, Dani & Subramanian, Arvind & Trebbi, Francesco, 2002. "Institutions Rule: The Primacy of Institutions Over Geography and Integration in Economic Development," CEPR Discussion Papers 3643, C.E.P.R. Discussion Papers.
  4. 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.
  5. Jonathan Haskel & Matthew J. Slaughter, 1999. "Trade, Technology and U.K. Wage Inequality," NBER Working Papers 6978, National Bureau of Economic Research, Inc.
  6. Pravin Krishna & Devashish Mitra, . "Trade Liberalization, Market Discipline and Productivity Growth: New Evidence From India," Working Papers 96-8, Brown University, Department of Economics.
  7. 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.
  8. Westbrook, M Daniel & Tybout, James R, 1993. "Estimating Returns to Scale with Large, Imperfect Panels: An Application to Chilean Manufacturing Industries," World Bank Economic Review, World Bank Group, vol. 7(1), pages 85-112, January.
  9. Harrison, Ann E., 1994. "Productivity, imperfect competition and trade reform : Theory and evidence," Journal of International Economics, Elsevier, vol. 36(1-2), pages 53-73, February.
  10. Ruth A. Judson & Ann L. Owen, 1997. "Estimating dynamic panel data models: a practical guide for macroeconomists," Finance and Economics Discussion Series 1997-3, Board of Governors of the Federal Reserve System (U.S.).
  11. Slaughter, Matthew J., 2001. "International trade and labor-demand elasticities," Journal of International Economics, Elsevier, vol. 54(1), pages 27-56, June.
  12. Hasan, Rana, 2002. "The impact of imported and domestic technologies on the productivity of firms: panel data evidence from Indian manufacturing firms," Journal of Development Economics, Elsevier, vol. 69(1), pages 23-49, October.
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