Effects of Trade liberalisation, Environmental and Labour Regulations on Employment in India's Organised Textile Sector

In recent years, employment has fallen in the organised textile sector despite an aggregate rise in output and capital. This paper analyses the role of various factors that influence employment using 3- digit classification of Indian textile industry from 1973-74 to 1997-98. Our results document that the fall in employment can be explained in terms of rise in wages, output shocks, lack of capital utilisation and trade restrictiveness pertaining to Multi-Fibre Arrangement (MFA). Environmental regulations enhance employment in the sub-sectors that are most likely to be influenced by them. The results are robust to different measures of capital, its utilisation and disaggregation to state-level. We also illustrate that in a post-MFA regime, employment in the sector is bound to increase owing to absence of trade restrictions and prospects of huge investment in general and in complying with environmental regulations, though the labour regulations might aect the magnitude of that increase. [Working Paper No. WP-2005-005]