Trade Liberalization and Wage Inequality: Evidence From India

January 1, 2005

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Prachi Mishra, and Utsav Kumar. Trade Liberalization and Wage Inequality: Evidence From India, (USA: International Monetary Fund, 2005) accessed December 26, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

We evaluate empirically the impact of the dramatic 1991 trade liberalization in India on the industry wage structure. The empirical strategy uses variation in industry wage premiums and trade policy across industries and over time. In contrast to earlier studies on developing countries, we find a strong, negative, and robust relationship between changes in trade policy and changes in industry wage premiums over time. The results are consistent with liberalization-induced productivity increases at the firm level, which get passed on to industry wages. Since tariff reductions were proportionately larger in sectors that employ a larger share of unskilled workers, the increase in wage premiums in these sectors implies that unskilled workers experienced an increase in their relative incomes. Thus, our findings suggest that trade liberalization has led to decreased wage inequality in India.

Subject: Tariffs, Trade barriers, Trade liberalization, Wage adjustments, Wages

Keywords: Coverage ratio, Industry indicator, Industry wage difference, Trade policy, Wage premium, WP

Publication Details

Pages:

42
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2005/020
Stock No:

WPIEA2005020
ISBN:

9781451860399
ISSN:

1018-5941

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