Liberalized trade policy and inequality: Evidence from post-Multi-Fibre Arrangement India and some theoretical issues

Abstract

The phased elimination of the Multi-Fibre Arrangement has been one of the most compelling trade policy reforms of the early twenty-first century, and has brought in significant changes in the industrial structures of the countries of the global south. The textile and clothing industry is the largest foreign exchange earner and the largest employment provider in India. We show that since the withdrawal of the quota, the industry has witnessed unprecedented concentration of firm-level activities, size-wise as well as state-wise, thereby creating some sort of inequality. Moreover, we also show that the aggregate wage bill of export-oriented firms in India actually rose during this period. However, the aggregate state-level wage bill falls as the profit level rises for the industry. We have also provided a brief analytical exercise to point out conditions under which such a global policy could well raise labourers' income and generate more employment