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Input-trade Liberalization and the Demand for Managers: Evidence from India

Research output: Contribution to journalJournal article

Forthcoming
<mark>Journal publication date</mark>10/01/2018
<mark>Journal</mark>Journal of International Economics
<mark>State</mark>Accepted/In press
<mark>Original language</mark>English

Abstract

Can input-trade liberalization increase the demand for managers? Imported inputs are an
important source of technology ináows. Previous research on the implications of imported inputs
overlooked their potential e§ect on the demand for managing the new incoming knowledge.
Adopting the case of India, this paper presents a Örst empirical attempt to Öll this gap. Using
detailed Örm-level data that uniquely distinguishes between the compensations of managers
and non-managers, and exploiting the exogenous nature of Indiaís Eight-Plan trade reform,
we investigate the potential causal link between input-trade liberalization and the demand for
managers relative to non-managers. We Önd that a decrease in input tari§s increases the relative
demand for managers, primarily in domestic Örms that use the imported inputs to produce
intermediate goods. SpeciÖcally, a 10% drop in input tari§s induces, on average, a 1-1.5%
increase in the compensation share of managers, manifested via increases in both their number
as well as average wages and bonuses. These patterns are: (i) observed across the Örmsí size
distribution; (ii) applicable for both exporting and non-exporting Örms; (iii) stronger in familyrun
Örms that operate under áexible labor market regulations; (iv) relatively more dominant
in the short-run. In addition, we show that unlike changes in input tari§s, import competition
does not a§ect the relative demand for managers.