2010 Reports

Trade and Inequality in India

Krishna, Pravin; Sethupathy, Guru

To study the effects of the dramatic economic reforms undertaken in India in the early 1990s on inequality, this paper uses the Theil inequality measure constructed using Indian household expenditure survey data from 1988-2005. Overall inequality shows some variation over the period, rising between 1988 and 1994 and again between 1994 and 2000, but falling by 2005 to roughly the pre-reform level. Furthermore, in the post reform period (between 1994 and 2005), inequality fell in most Indian states, with rural areas in most states and urban areas in about half the states experiencing a statistically significant reduction in inequality. The change in inequality across households within states is found to uncorrelated with the change in state-level measures of tariff and non-tariff protection.