The Policy Research Working Paper Series disseminates the findings of work in progress to encourage the exchange of ideas about development issues. An objective of the series is to get the findings out quickly, even if the presentations are less than fully polished. The papers carry the names of the authors and should be cited accordingly. The findings, interpretations, and conclusions expressed in this paper are entirely those of the authors. They do not necessarily represent the views of the International Bank for Reconstruction and Development/World Bank and its affiliated organizations, or those of the Executive Directors of the World Bank or the governments they represent.
The Policy Research Working Paper Series disseminates the findings of work in progress to encourage the exchange of ideas about development issues. An objective of the series is to get the findings out quickly, even if the presentations are less than fully polished. The papers carry the names of the authors and should be cited accordingly. The findings, interpretations, and conclusions expressed in this paper are entirely those of the authors. They do not necessarily represent the views of the International Bank for Reconstruction and Development/World Bank and its affiliated organizations, or those of the Executive Directors of the World Bank or the governments they represent.
This paper examines the link between trade protection and industry wage premia in India using a unique dataset combining employment survey data with industry-level data for various years between 1983 and 2000. The author finds that India's trade reforms were not distributionally neutral. The impact of protection on industry wage premia was positive and statistically significant, though modest in magnitude: workers employed in industries with high tariffs received higher wages than apparently identical workers in low-tariff industries. Because industries with high initial levels of protection were also those with the largest tariff reductions during this period and had the highest share of unskilled workers, the positive tariff-wage effect implies that the trade reforms were likely to have increased wage inequality as the relative wages of the (predominantly unskilled) workers in these manufacturing industries fell. The 1990s were a period of rapid trade liberalization and industrial deregula tion in India. Despite considerable debate regarding these reforms, little systematic empirical work has investigated their wage effects. This paper is among the first attempts to fill this gap through an econometric exami nation of the link between trade protection and industry wage premia. The modest but growing literature in this field yields ambiguous conclusions on the impact of trade protection on relative indus try wages, and the primary goal of this paper *Puja Vasudeva Dutta is a Social Protection Economist at the World Bank in New Delhi, India. This research was carried out as part of her DPhil thesis at the University of Sussex and was funded by grants from the Department of Economics at the University of Sussex, the Interna tional Federation of University Women, Universities UK, the Wingate Foundation, and the Royal Economic Society and support from the Poverty Research Unit at Sussex. The author thanks her supervisors, Barry Reilly and Alan Winters, for their guidance and very helpful suggestions. Comments on earlier drafts from Rajesh Chadha, Patriciajustinojulie Litchfield, and Yoko Niimi and from participants at the EUDN Doctoral Workshop (2003) and GEP Postgraduate Conference (2004) are much appreciated. is to present further empirical evidence for India. Several studies have suggested that workers' industry affiliation is an important determinant of the wage, either because of returns to industry-specific skills that cannot be transferred in the short-to medium-run or because of industry rents arising out of imperfect competition (Krueger and Sum mers 1988). There is some evidence that labor reallocation in the wake of trade liberalization is limited in developing countries, possibly due to labor market rigidities, suggesting that adjustment to trade reforms might oc cur through wage rather than employment channels for industries that experience rela tive tariff changes (Goldberg and Pavcnik 2004). This paper draws on data from three large-scale employment surveys conducted
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