Trade liberalization and unemployment: Theory and evidence from India |
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Authors: | Rana Hasan Priya Ranjan |
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Institution: | a Asian Development Bank, Philippinesb Syracuse University, United Statesc University of California, Irvine, United Statesd University of Melbourne, Australiae International Growth Centre, United Kingdomf IZA, Germany |
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Abstract: | A widely held view among the public is that trade liberalization increases unemployment. Using state and industry-level unemployment and trade protection data from India, we find no evidence of any unemployment increasing effect of trade reforms. In fact, our state-level analysis reveals that urban unemployment declines with trade liberalization in states with flexible labor markets and larger employment shares in net exporter industries. Moreover, our industry-level analysis indicates that workers in industries experiencing greater reductions in trade protection were less likely to become unemployed, especially in net export industries. Our results can be explained within a theoretical framework incorporating trade and search-generated unemployment and some institutional features of the Indian economy. |
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Keywords: | F10 F14 F16 J6 O19 O53 |
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