Trade, labour reallocation and productivity growth in the indian manufacturing sector

This article examines the nexus between trade, structural change, and labour productivity growth in India’s organised manufacturing sector. The study aims to investigate the impact of trade on labour productivity and labour reallocation that has contributed to aggregate productivity growth during the 1991–2018 period. The descriptive statistical analysis reveals that both exports and imports have increased significantly, and the composition of exported products has shifted towards medium–high-technology-intensive products. We find that the major growth in value added and wages has been observed in the medium-to-high-technology industries, whereas the low-technology segment continues to dominate the employment generation. The panel econometric analysis suggests that productivity growth is primarily driven by technical change within industries, and trade mainly induces intra-sectoral productivity growth with limited impact on labour reallocation between sectors. The absence of structural change from trade openness can be attributed to the existence of market frictions and structural rigidities that prevent efficient resource allocation across the manufacturing sector in India.