Trade liberalization and unemployment: Theory and evidence from India

Rana Hasan, Devashish Mitra, Priya Ranjan, Reshad N. Ahsan

Research output: Contribution to journalArticle

51 Scopus citations

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.

Original languageEnglish (US)
Pages (from-to)269-280
Number of pages12
JournalJournal of Development Economics
Volume97
Issue number2
DOIs
StatePublished - Mar 1 2012

Keywords

  • India
  • Labor markets
  • Protection
  • Search unemployment
  • Trade reforms

ASJC Scopus subject areas

  • Development
  • Economics and Econometrics

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