Trade Liberalization and Wage Inequality in the Indian Manufacturing Sector

Furuta, Manabu (2016): Trade Liberalization and Wage Inequality in the Indian Manufacturing Sector.

Abstract

This study analyzes the effect of reduction in input and output tariffs on the intra-plant wage inequality in India, which is one of the most unskilled labor abundant countries, for the period 2000 to 2007. We find that a reduction in output tariff increases the wage inequality, whereas a reduction in input tariff does not have any statistically significant effect on wage inequality. These results suggest that the Stolper-Samuelson effect works in the Indian manufacturing sector where unskilled labor-intensive industries were protected the most prior to trade liberalization. We also examine the effect of the increased demand for skilled workers by the modern service sector, which has been the driving force of recent economic growth in India. The increased demand raises the wage inequality in manufacturing implying that skill-biased technological change in modern service sector has an indirect effect on wage inequality in this sector.

• Item Type: MPRA Paper
• Language: English
• Keywords: trade liberalization, wage inequality, India, the Stolper- Samuelson effect, skill biased technical change, tariff
• Subjects: F - International Economics > F1 - Trade > F14 - Empirical Studies of Trade; F - International Economics > F6 - Economic Impacts of Globalization > F63 - Economic Development; F - International Economics > F6 - Economic Impacts of Globalization > F66 - Labor; J - Labor and Demographic Economics > J3 - Wages, Compensation, and Labor Costs > J31 - Wage Level and Structure ; Wage Differentials; O - Economic Development, Innovation, Technological Change, and Growth > O2 - Development Planning and Policy > O24 - Trade Policy ; Factor Movement Policy ; Foreign Exchange Policy; O - Economic Development, Innovation, Technological Change, and Growth > O5 - Economywide Country Studies > O53 - Asia including Middle East

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