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Trade liberalization and unemployment: Theory and evidence from India

Rana Hasan, Devashish Mitra (), Priya Ranjan and Reshad Ahsan ()

Journal of Development Economics, 2012, vol. 97, issue 2, 269-280

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.

Keywords: Search unemployment; Protection; Trade reforms; Labor markets; India (search for similar items in EconPapers)
JEL-codes: F10 F14 F16 J6 O19 O53 (search for similar items in EconPapers)
Date: 2012
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