Trade Liberalization, Poverty And Inequality: Evidence From Indian Districts

Although it is commonly believed that trade liberalization results in higher GDP, little is known about its effects on poverty and inequality. This paper uses the sharp trade liberalization in India in 1991, spurred to a large extent by external factors, to measure the causal impact of trade liberalization on poverty and inequality in districts in India. Variation in pre-liberalization industrial composition across districts in India and the variation in the degree of liberalization across industries allow for a difference-in- difference approach, establishing whether certain areas benefited more from, or bore a disproportionate share of the burden of liberalization.