Essays on Inequality and Reforms: Evidence from India

Abstract

Economic reforms along with its promise of increasing income and growth rates have also raised concerns about its distributional implications. These concerns are at the heart of the arguments of those who oppose certain economic reforms. Focusing on the economic reforms implemented in India, we investigate the distributional implications of the reforms using four waves of nationally representative household survey data over the period 1983 to 2000. Chapter 1 provides an overview of the economic policies in India, including a discussion of the reforms implemented in 1991. We also examine the economic performance across states and regions in India over the period 1980-2000.

Chapter 2 investigates the role of economic geography, as measured by proximity to markets and suppliers. In this chapter we ask two questions, first whether market access affects regional wage inequality and second, whether that has changed after the reforms in 1991 were implemented. With the deregulation of private sector activity implemented as a part of the reforms, location features such as proximity to markets and suppliers are likely to influence the location of new investments. The differences in spatial features contribute to the between-region component of the total income inequality. We find that regions closer to the ports have higher wages associated with them. On the other hand, greater proximity to domestic markets and sources of supply are not associated with higher region wage premia before liberalization. However, there is heterogeneity in their role over the time period under study. We find that post-reforms the role of domestic market and supply access has become stronger and they have a positive and statistically significant impact on wages associated with a region. The effect of greater access to ports does not appear to have become any stronger post-reforms. This suggests that the share of the between-region component in the total income inequality will be higher, resulting in an increase in spatial income inequality, in the post-reform period.

Chapter 3 evaluates empirically the impact of the dramatic 1991 trade liberalization in India on its industry wage structure. The empirical strategy uses the variation in industry wage premia and trade policy across industries and over time. We find a strong and robust relationship between reductions in Indian trade barriers and an increase in the industry wage premia over time. We also find that trade liberalization has led to decreased wage inequality between skilled and unskilled workers in India.