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Open Access Publications from the University of California

The Impact Of Trade Liberalization And Information Technology On India's Manufacturing Sector

  • Author(s): Sharma, Shruti
  • Advisor(s): Poole, Jennifer
  • Aizenman, Joshua
  • et al.

This dissertation is an investigation into how trade liberalization and the adoption of information technology have impacted labour and productivity in India's manufacturing sector respectively. The second chapter analyses the relationship between India's liberalization of tariffs on imported intermediate inputs (henceforth input tariff liberalization) and plant-level skill composition. It reveals that plant-level skill composition increased at importing plants relative to non-importing plants in response to input tariff liberalization, mainly via a relative decline in production workers. Incorporating import competition into the framework of analysis suggests that there is a weak complementarity between imported intermediate inputs and skilled workers. The third chapter delves into the mechanisms underlying this relationship by decomposing the imported intermediate inputs into categories of "quality", "scale" and "variety" based on whether they were imported for perceived higher quality, lower price, or if they were domestically unavailable respectively. The main finding is that it is the cheaper imported intermediate inputs that have the strongest displacement effects on production workers. Finally, chapter 4 which is based on joint work with Nirvikar Singh, studies the relationship between investment in information technology and plant-level gross value added. An important finding is that plant fixed effects, which possibly control for unobserved managerial ability, significantly reduce the returns to IT investment. An important result that emerges from the dissertation is that skill and abilities of workers are important complements to inputs embodying superior technology -- whether in the form of imports or information technology -- and therefore, may influence the returns of these inputs on plant-level gross value added or productivity.

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