Impact of economic globalisation and productivity on labour share in India and China

This paper employs time series and panel ARDL methods to investigate the impact of economic globalization and productivity on labor share in India and China from 1980-81 to 2019-2020 at both aggregated and disaggregated industry levels. The study makes three significant contributions: (1) creating comparable trade data at 27 disaggregated industry levels, (2) exploring whether the change in labor share is due to wage-productivity gap and/or capital income growth, and (3) empirically evaluating the impact of economic integration and productivity on labor share. The study finds that India has expanded forward (GVCs) by reducing backward GVCs relatively, while China has expanded forward GVCs with relatively unchanged backward GVCs. The share of ICT-intensive services in India's exports and the share of investment goods in China's exports have both significantly increased. Furthermore, the wage-productivity gap and high growth of capital income are crucial factors for declining labor share in India. The empirical results establish the dominant role of economic integration and capital intensity in explaining labor share in India and China. The study also finds that productivity has an adverse effect on labor share in both countries.