Trade Liberalization and Aggregate Matching Function in India

This article investigates the link between trade liberalization and the job matching process in India. The aggregate matching function in India is estimated by incorporating the trade openness as a proxy for trade liberalization. The monthly data are drawn from Employment Exchange in India, the only public employment service in the country. Overall, it appears that trade liberalization leads to a decline in new hires. However, the analysis of period decomposition shows that correlation between trade-to-GDP ratio and new hires is negative and significant only in the period of the Ninth Plan, 1997 to 2002, when political influence delayed economic reform. The suggestion is made that the negative relationship between trade liberalization and new job creation does not hold except for the period of political influence and thus the Indian government should continue to promote external reform