Trade Adjustment and Human Capital Investments: Evidence from Indian Tariff Reform
IMF Working Papers, April 1, 2007
Source details
- Canonical URL
- Trade Adjustment and Human Capital Investments: Evidence from Indian Tariff Reform
Other formats
Bibliographic details
- Authors: Eric V. Edmonds, Nina Pavcnik, Petia Topalova
- Published: April 1, 2007
- Series: IMF Working Papers
Summary and main findings
- Research question: Do the short and medium term adjustment costs associated with trade liberalization influence schooling and child labor decisions?
- Context: India's 1991 tariff reforms.
- Aggregate trends in the 1990s:
- Rural India experienced a dramatic increase in schooling and decline in child labor.
- Heterogeneous community outcomes:
- Communities that relied heavily on employment in protected industries before liberalization do not experience as large an increase in schooling or decline in child labor.
- Association with poverty:
- The failure of these communities to follow the national trend in increasing schooling and diminishing work is associated with a failure to follow the national trend in poverty reduction.
- Role of schooling costs:
- Schooling costs appear to play a large role in the relationship between poverty, schooling, and child labor.
Mechanisms and interpretation
- Adjustment costs from trade liberalization diminished employment in previously protected industries, which affected local poverty dynamics.
- Changes in poverty mediate households' capacity to afford schooling, thereby influencing child labor and schooling choices.
- The analysis links sectoral employment exposure to tariff protection with subsequent human capital investment outcomes at the community level.
Quantitative estimates and attribution
- Temporal markers and scope:
- 1991 tariff reforms.
- Effects examined primarily in the 1990s.
- Extrapolated contribution estimates:
- Roughly half of India's rise in schooling during the 1990s can be explained by falling poverty and therefore improved capacity to afford schooling.
- A third of the fall in child labor during the 1990s can be explained by falling poverty and therefore improved capacity to afford schooling.
Key policy-relevant implications
- Trade liberalization can have heterogeneous effects on human capital accumulation across communities depending on pre-reform industrial structure.
- Policies to mitigate short- and medium-term adjustment costs in communities with high reliance on protected industries could help align local schooling and child labor outcomes with national gains.
- Addressing schooling costs directly may be an effective channel to translate poverty reduction into increased schooling and reduced child labor.
Source: Trade Adjustment and Human Capital Investments: Evidence from Indian Tariff Reform — Eric V. Edmonds, Nina Pavcnik, Petia Topalova; April 1, 2007.