Import Competition, Formalization, and the Role of Contract Labor

Pavel Chakraborty, Rahul Singh and Vidhya Soundararajan ()
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Pavel Chakraborty: Lancaster University
Vidhya Soundararajan: Indian Institute of Technology, Bombay

No 15760, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: Does higher import competition increase formalization and aggregate productivity? Exploiting plausibly exogenous variation from Chinese imports, we provide empirical causal evidence that higher imports increases the share of formal manufacturing enterprise employment in India. This formal share increase is both due to the rise in formal-enterprise employment driven by the high productivity firms, and a fall in informal-enterprise employment. The labor reallocation is enabled by the formal firms' hiring of contract workers, who do not carry stringent string costs. Overall, Chinese import competition increased formal sector employment share by 3.7 percentage points, and aggregate labor productivity by 2.87%, between 2000-2001 and 2005-2006.

Keywords: Chinese imports; contract workers; informality; formal sector employment; import competition; reallocation; misallocation (search for similar items in EconPapers)
JEL-codes: F14 F16 F66 O17 O47 (search for similar items in EconPapers)
Pages: 70 pages
Date: 2022-11
New Economics Papers: this item is included in nep-int, nep-iue and nep-lab
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Published - published in: World Bank Economic Review, 2024, 38 (4), 741–771,

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Working Paper: Import Competition, Formalization, and the Role of Contract Labor (2021)
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