IDEAS home Printed from https://ideas.repec.org/p/ess/wpaper/id805.html
   My bibliography  Save this paper

Liberalisation and Wage Inequality In India

Author

Listed:
  • Rashmi Banga

Abstract

This paper is a pioneering attempt in estimating the impact of three major components of liberalisation on labour productivity and wage inequality in the Indian manufacturing sector, namely FDI, trade and technological progress. The study has shown that these components have led to an improvement in labour productivity in the post- reforms period. However, they have a differential impact on the wages of skilled and unskilled workers. Wage inequality is found to have increased overtime and this has been caused mainly by higher FDI and skill-biased technological progress. An important policy implication is that `to maximise the benefits of FDI, it is important to channelise it towards export-oriented industries, which use larger number of low-skilled workers`. The paper also emphasises on the importance of research and development (R&D) to make technological progress in less skill-biased Indian industries.

Suggested Citation

  • Rashmi Banga, 2007. "Liberalisation and Wage Inequality In India," Working Papers id:805, eSocialSciences.
    • Handle: RePEc:ess:wpaper:id:805
    as

    Download full text from publisher

    File URL: http://www.eSocialSciences.com/data/articles/Document12012007380.7001001.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Frank Barry & Holger Görg & Eric Strobl, 2004. "Foreign direct investment, agglomerations, and demonstration effects: An empirical investigation," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 140(3), pages 583-600, September.
    2. Wood, Adrian, 1997. "Openness and Wage Inequality in Developing Countries: The Latin American Challenge to East Asian Conventional Wisdom," The World Bank Economic Review, World Bank, vol. 11(1), pages 33-57, January.
    3. repec:bla:scotjp:v:48:y:2001:i:2:p:134-47 is not listed on IDEAS
    4. Taylor, Karl Bernard, 2000. "Uk Earnings Dispersion: An Industry And Regional Perspective," ERSA conference papers ersa00p8, European Regional Science Association.
    5. Markusen, James R. & Venables, Anthony J., 1999. "Foreign direct investment as a catalyst for industrial development," European Economic Review, Elsevier, vol. 43(2), pages 335-356, February.
    6. Katz, Lawrence F. & Autor, David H., 1999. "Changes in the wage structure and earnings inequality," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 26, pages 1463-1555, Elsevier.
    7. Francisco Alcalá & Antonio Ciccone, 2004. "Trade and Productivity," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 119(2), pages 613-646.
    8. Davies, Stephen W & Lyons, Bruce R, 1991. "Characterising Relative Performance: The Productivity Advantage of Foreign Owned Firms in the UK," Oxford Economic Papers, Oxford University Press, vol. 43(4), pages 584-595, October.
    9. Paolo Figini & Holger Görg, 1999. "Multinational companies and wage inequality in the host country: The case of Ireland," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 135(4), pages 594-612, December.
    10. Edward M. Graham & Erika Wada, 2000. "Domestic Reform, Trade and Investment Liberalisation, Financial Crisis, and Foreign Direct Investment into Mexico," The World Economy, Wiley Blackwell, vol. 23(6), pages 777-797, June.
    11. Gera, S & Masse, P, 1996. "Employment Performance in the Knowledge-Based Economy," Gouvernement du Canada - Industrial Organization 14, Gouvernement du Canada - Industry Canada.
    12. Berman, Eli & Machin, Stephen, 2000. "Skill-Based Technology Transfer around the World," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 16(3), pages 12-22, Autumn.
    13. Peter Gottschalk & Timothy M. Smeeding, 1997. "Cross-National Comparisons of Earnings and Income Inequality," Journal of Economic Literature, American Economic Association, vol. 35(2), pages 633-687, June.
    14. Kapetanios, George, 2001. "Incorporating lag order selection uncertainty in parameter inference for AR models," Economics Letters, Elsevier, vol. 72(2), pages 137-144, August.
    15. Stephen Machin & John Van Reenen, 1998. "Technology and Changes in Skill Structure: Evidence from Seven OECD Countries," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 113(4), pages 1215-1244.
    16. Paul R. Krugman, 2000. "Crises : the price of globalization?," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 75-106.
    17. Florence Hubert & Nigel Pain, 2000. "Inward Investment and Technical Progress in the UK Manufacturing Sector," OECD Economics Department Working Papers 268, OECD Publishing.
    18. Djankov, Simeon & Hoekman, Bernard M, 2000. "Foreign Investment and Productivity Growth in Czech Enterprises," The World Bank Economic Review, World Bank, vol. 14(1), pages 49-64, January.
    19. Haddad, Mona & Harrison, Ann, 1993. "Are there positive spillovers from direct foreign investment? : Evidence from panel data for Morocco," Journal of Development Economics, Elsevier, vol. 42(1), pages 51-74, October.
    20. Driffield, Nigel & Taylor, Karl, 2000. "FDI and the Labour Market: A Review of the Evidence and Policy Implications," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 16(3), pages 90-103, Autumn.
    21. Liu, Xiaming & Parker, David & Vaidya, Kirit & Wei, Yingqi, 2001. "The impact of foreign direct investment on labour productivity in the Chinese electronics industry," International Business Review, Elsevier, vol. 10(4), pages 421-439, August.
    22. Markusen, James R & Venables, Anthony J, 1997. "The Role of Multinational Firms in the Wage-Gap Debate," Review of International Economics, Wiley Blackwell, vol. 5(4), pages 435-451, November.
    23. James McDonald & Harry Bloch, 1999. "The Spillover Effects of Industrial Action on Firm Profitability," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 15(2), pages 183-200, September.
    24. Baumol, William J. & Nelson, Richard R. & Wolff, Edward N. (ed.), 1994. "Convergence of Productivity: Cross-National Studies and Historical Evidence," OUP Catalogue, Oxford University Press, number 9780195083903.
    25. Yih-Chyi Chuang & Chi-Mei Lin, 1999. "Foreign direct investment, R&D and spillover efficiency: Evidence from Taiwan's manufacturing firms," Journal of Development Studies, Taylor & Francis Journals, vol. 35(4), pages 117-137.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Sahu, Pritish Kumar, 2010. "FDI, wage inequality and employment in emerging economies: recent evidence from Indian manufacturing," MPRA Paper 35149, University Library of Munich, Germany.
    2. Javed Iqbal & Misbah Nosheen & Syed Nawab Haider Naqvi, 2015. "Trade Shocks and Labour Adjustment: Evidence from Pakistan’s Manufacturing Industries," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 54(3), pages 197-214.
    3. Kaveri Deb & William R. Hauk, 2020. "The Impact of Chinese Imports on Indian Wage Inequality," The Indian Journal of Labour Economics, Springer;The Indian Society of Labour Economics (ISLE), vol. 63(2), pages 267-290, June.
    4. Pi, Jiancai & Zhou, Yu, 2013. "Institutional quality and skilled–unskilled wage inequality," Economic Modelling, Elsevier, vol. 35(C), pages 356-363.
    5. Rosa Abraham, 2019. "Informal Employment and the Structure of Wages in India: A Review of Trends," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 65(S1), pages 102-122, November.
    6. Gupta Manash Ranjan & Dutta Priya Brata, 2014. "Skilled-Unskilled Wage Inequality, Growth of Skilled Labour and Development Policies," Journal of Globalization and Development, De Gruyter, vol. 5(1), pages 103-128, June.
    7. Eckhard Siggel & Pradeep Agrawal, 2009. "The Impact Of Economic Reforms On Indian Manufacturers : Evidence From A Small Sample Survey," Development Economics Working Papers 22930, East Asian Bureau of Economic Research.
    8. Alokesh Baura & Priyanta Ghosh, 2015. "On Wage Inequality, Trade and Technology: Theory and Empirics," Centre for International Trade and Development, Jawaharlal Nehru University, New Delhi Discussion Papers 15-09, Centre for International Trade and Development, Jawaharlal Nehru University, New Delhi, India.
    9. Li, Xiaochun & Zhou, Yu, 2013. "An economic analysis of remittance of unskilled migration on skilled–unskilled wage inequality in labor host region," Economic Modelling, Elsevier, vol. 33(C), pages 428-432.
    10. Hashim, Danish & Banga, Rashmi, 2009. "Impact of Trade on Labour Productivity and Wage Inequality in India," MPRA Paper 35200, University Library of Munich, Germany.
    11. Manash Ranjan Gupta & Priya Brata Dutta, 2018. "Skilled-unskilled wage inequality and structural transformation in a dual economy," Indian Economic Review, Springer, vol. 53(1), pages 311-332, December.
    12. Pan, Lijun & Zhou, Yu, 2013. "International factor mobility, environmental pollution and skilled–unskilled wage inequality in developing countries," Economic Modelling, Elsevier, vol. 33(C), pages 826-831.
    13. Gupta, Manash Ranjan & Dutta, Priya Brata, 2011. "Skilled-unskilled wage inequality and unemployment: A general equilibrium analysis," Economic Modelling, Elsevier, vol. 28(4), pages 1977-1983, July.
    14. Sugandha Huria & Manoj Pant, 2018. "Foreign direct investment, welfare and wage inequality in a small open economy: theory and empirics," Indian Economic Review, Springer, vol. 53(1), pages 131-166, December.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Holger Görg & David Greenaway, 2016. "Much Ado about Nothing? Do Domestic Firms Really Benefit from Foreign Direct Investment?," World Scientific Book Chapters, in: MULTINATIONAL ENTERPRISES AND HOST COUNTRY DEVELOPMENT Volume 53: World Scientific Studies in International Economics, chapter 9, pages 163-189, World Scientific Publishing Co. Pte. Ltd..
    2. Taylor, Karl & Driffield, Nigel, 2005. "Wage inequality and the role of multinationals: evidence from UK panel data," Labour Economics, Elsevier, vol. 12(2), pages 223-249, April.
    3. Greenaway, David & Görg, Holger, 2002. "Much Ado About Nothing? Do Domestic Firms Really Benefit from Foreign Investment?," CEPR Discussion Papers 3485, C.E.P.R. Discussion Papers.
    4. Neil Foster-McGregor, 2012. "Innovation and Technology Transfer across Countries," wiiw Research Reports 380, The Vienna Institute for International Economic Studies, wiiw.
    5. Nigel Driffield & James H. Love & Karl Taylor, 2009. "Productivity And Labour Demand Effects Of Inward And Outward Foreign Direct Investment On Uk Industry," Manchester School, University of Manchester, vol. 77(2), pages 171-203, March.
    6. Rashmi Banga, 2007. "Impact of Liberalisation on Wages and Employment in Indian Manufacturing Industries," Working Papers id:989, eSocialSciences.
    7. Rashmi Banga, 2005. "Liberalisation and wage inequality in India," Indian Council for Research on International Economic Relations, New Delhi Working Papers 156, Indian Council for Research on International Economic Relations, New Delhi, India.
    8. An, Galina & Puttitanun, Thitima, 2010. "Quality requirements in developing countries," Journal of Economics and Business, Elsevier, vol. 62(2), pages 94-115, March.
    9. Tomáš Havránek & Zuzana Iršová, 2010. "Meta-Analysis of Intra-Industry FDI Spillovers: Updated Evidence," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 60(2), pages 151-174, May.
    10. Matija Rojec & Mark Knell, 2018. "Why Is There A Lack Of Evidence On Knowledge Spillovers From Foreign Direct Investment?," Journal of Economic Surveys, Wiley Blackwell, vol. 32(3), pages 579-612, July.
    11. Blomström, Magnus & Kokko, Ari, 2003. "The Economics of Foreign Direct Investment Incentives," EIJS Working Paper Series 168, Stockholm School of Economics, The European Institute of Japanese Studies.
    12. Christian Bellak, 2004. "How Domestic and Foreign Firms Differ and Why Does it Matter?," Journal of Economic Surveys, Wiley Blackwell, vol. 18(4), pages 483-514, September.
    13. Hashim, Danish & Banga, Rashmi, 2009. "Impact of Trade on Labour Productivity and Wage Inequality in India," MPRA Paper 35200, University Library of Munich, Germany.
    14. Beata Smarzynska Javorcik, 2004. "Does Foreign Direct Investment Increase the Productivity of Domestic Firms? In Search of Spillovers Through Backward Linkages," American Economic Review, American Economic Association, vol. 94(3), pages 605-627, June.
    15. Harpreet Dusanjh & A.S. Sidhu, 2009. "Multi-spillover Effects of Multinational Corporations on Host Countries," Global Business Review, International Management Institute, vol. 10(2), pages 243-260, July.
    16. -, 2004. "Foreign Investment in Latin America and the Caribbean 2003," La Inversión Extranjera Directa en América Latina y el Caribe, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), number 1127 edited by Eclac, May.
    17. Adriana Peluffo, 2015. "Foreign Direct Investment, Productivity, Demand for Skilled Labour and Wage Inequality: An Analysis of Uruguay," The World Economy, Wiley Blackwell, vol. 38(6), pages 962-983, June.
    18. Uppenberg, Kristian & Riess, Armin, 2004. "Determinants and growth effects of foreign direct investment," EIB Papers 3/2004, European Investment Bank, Economics Department.
    19. Noor Aini Khalifah & Radziah Adam, 2009. "Productivity Spillovers from FDI in Malaysian Manufacturing: Evidence from Micro‐panel Data," Asian Economic Journal, East Asian Economic Association, vol. 23(2), pages 143-167, June.
    20. Della Temenggung, 2007. "Productivity Spillovers from Foreign Direct Investment: Indonesian Manufacturing Industry’s Experience 1975-2000," DEGIT Conference Papers c012_048, DEGIT, Dynamics, Economic Growth, and International Trade.

    More about this item

    Keywords

    Manufacturing sector; Skills;

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ess:wpaper:id:805. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Padma Prakash (email available below). General contact details of provider: http://www.esocialsciences.org .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.