Labour-Market Effects of India's Termination from the United States' GSP

• In Event: International labor market outcomes: The Role of Public Policy

Abstract

This paper investigates the 2019 termination of India's preferential trading under the United States' Generalized System of Preferences (GSP). It examines the impact of the GSP termination with a triple differences-in-differences specification that controls for both country- and product-level export changes. We calculate estimates of the decrease in exports from India to the United States by sector, deriving a shock index. We then use the shock index as a treatment variable in a second model, utilizing a difference-in-difference approach to measure the effect of the shock on monthly individual-level worker incomes and employment. 

Our findings suggest that the GSP termination had a considerable impact on Indian exports to the US; on average exports of affected products dropped by 2 percent in 2019, with exports of transportation manufacturing declining more than 20 percent. These reduced trade flows from India to the U.S. had knock-on economic implications for workers in India that we argue were likely driven by a strong countercyclical response from large firms that resorted to occupational restructuring that saw companies prioritising professionals at the expense of day labourers. These findings have important implications for economic inequality as earners in the top income quintiles arguably capture the largest income gains and demonstrate the greatest employment resilience in the immediate aftermath of the termination.

Author

• Christopher Heitzig, University of Sussex
  Presenting Author