Trade Liberalization and Employment Effects in Indian Manufacturing: An Empirical Assessment

Abstract

The purpose of the study is to examine the impact of international trade on manufacturing employment in India over 2004-2011. The theoretical literature suggests that trade affects the demand for labour through scale, composition and process effects. Since India is largely a labour- abundant country, its comparative advantage rests in labour intensive manufacturing. However, the study finds that since the onset of reforms, production and trade specialisation has been biased towards capital-intensive production and, therefore has failed to absorb the vast pool of labour resources. The study finds that in general the labour demand elasticity has fallen in the global economic crisis period except for skilled workers. The export orientation has a relatively greater impact on employment, especially for skilled workers in the crisis period. The overall impact was negative during the crisis. The survey of selected manufacturing firms shows that trade costs are higher for labour-intensive firms.