Effect of the Abolition of the Government‐Regulated Marketplace on Labor Market: Evidence from an Emerging Economy

ABSTRACT Agricultural marketing in India has been regulated by state governments to facilitate the centralized auction of agricultural produce. In 2006, Bihar, one of the largest states in India, decided to step away from government intervention in agricultural trade, such as through regulated marketplaces known as mandis , to promote private investment. Using the two‐way fixed‐effects estimation model, we find evidence that post‐reform average prices of main crops fell significantly, reducing farm income. Consequently, reduced demand for unskilled labor led to lower wages for field laborers. We discuss policy imperatives in light of new evidence on farmers' response to market liberalization in the agricultural sector.