This paper quantifies the misallocation of manufacturing output and factors of production between establishments across Indian districts during 1989-2010. ... See More + It first distills a number of stylized facts about misallocation in India, and demonstrates the validity of misallocation metrics by connecting them to regulatory changes in India that affected real property. With this background, the study next quantifies the implications and determinants of factor and output misallocation. Although more-productive establishments in India tend to produce more output, factors of production are grossly misallocated. A better allocation of output and factors of production is associated with greater output per worker. Misallocation of land plays a particularly important role in these challenges. See Less -
Policy Research Working Paper WPS7221 MAR 23, 2015
Duranton,Gilles; Ghani,Syed Ejaz; Goswami,Arti Grover; Kerr,William Robert
India's manufacturing growth from 1989 to 2010 displays two intriguing properties: 1) a substantial fraction of absolute and net employment growth is concentrated in informal tradable industries, and 2) much of this growth is connected to the development of one-person establishments. ... See More + This paper investigates the causes and determinants of these growth patterns. The rapid urbanization of the informal sector plays the strongest role, while there is some evidence for subcontracting by the formal sector and a "push" entrepreneurship story. The paper also finds modest connections of this growth to rising female labor force participation. The connection between the presence of informal manufacturing and local productivity levels is strong, and varies across urban and rural areas in ways that bolster urbanization and subcontracting hypotheses. See Less -
Policy Research Working Paper WPS7206 MAR 02, 2015
Ghani,Syed Ejaz; Kerr,William Robert; Segura,Alex
India's manufacturing sector has undergone many spatial adjustments since 1989, including, for example, the organized sector's migration to rural locations, the powerful rise of informal manufacturing within cities, and the development of intermediate cities for manufacturing. ... See More + This paper investigates the impact of these spatial adjustments for electricity usage in Indias manufacturing sector. Striking spatial differences in energy usage exist, and whether spatial adjustments exacerbate or alleviate energy consumption strains is important for issues ranging from reducing India's power blackouts to stemming rising pollution levels. Using detailed surveys for the organized and unorganized sectors, the analysis finds that electricity usage per unit of output in urban plants declined steadily during 1989-2010. In the rural areas, by contrast, electricity consumption per unit of output for organized sector plants peaked in 2000 and thereafter declined. Decomposing the observed trends in aggregate electricity usage from 2000 onwards, the paper finds that most reductions in electricity usage per unit of output came from reductions in existing sites of activity (defined through state-industry-urban/rural cells). The second biggest factor leading to reduced usage was lower usage in fast-growing sectors. By contrast, spatial movements of manufacturing activity across India did not significantly change usage levels and may have even increased them. This appears to have been in part because of the split nature of the mobility, with organized and unorganized sectors migrating in opposite directions. See Less -
Policy Research Working Paper WPS7055 OCT 01, 2014
Ghani, Ejaz; Goswami, Arti Grover; Kerr, William R.
Several high-level reports have raised the concern that low-income countries, especially in Africa, are experiencing premature de-industrialization. ... See More + The concern is that they are growing without transforming. Have the latecomers to development missed the boat? Although these concerns are well placed, Africa's growth seems to be benefitting from a structural transformation of a different kind. The manufacturing sector as a share of gross domestic product has shrunk, but countries have benefitted from the third industrial revolution with globalization of services being at the forefront of this technological revolution. As services produced and traded across the world expand with globalization, the possibilities for low-income countries to develop based on their comparative advantage expand. That comparative advantage can just as easily be in services as in manufacturing. Comparative advantage need not be a one-trick pony. See Less -
Policy Research Working Paper WPS6971 JUL 01, 2014
Ghani, Ejaz; O'Connell, Stephen D.
This paper examines the employment growth of Indian districts from 2000 to 2010 in the manufacturing and services sectors. Specialization and diversity metrics that combine industries in both sectors are calculated and related to subsequent job growth. ... See More + The analysis finds robust and consistent evidence that the diversity of industries in the district across the two sectors links to subsequent job growth. Somewhat surprisingly, this link finds its strongest expression outside typical stories about the role of diversity. For example, the growth is strongest in rural areas of districts and in districts with low population density. Diversity correlates with disproportionately higher employment growth in the informal sector and plays a role in generating employment in the district's smaller industries. These findings point toward the "inclusive" nature of diversity-driven growth and highlight a potentially important agenda item for policy makers concerned with inclusive development. See Less -
Policy Research Working Paper WPS6919 JUN 01, 2014
Ghani, Ejaz; Kerr, William R.; Tewari, Ishani
This economic premise examines the intersection of four important development themes: urbanization, agglomeration, gender, and informality. ... See More + Although urbanization has continued at a rapid pace, formalization appears to have stalled. Women comprise an increasing share of the informal sector in many countries, but are increasingly underrepresented in the formal sector relative to their presence in the informal sector. Firm-level evidence suggests informal enterprise creation, particularly by women, has important connections to urbanization. Female-specific market access, especially to inputs, is a key factor for women-owned enterprise creation in the informal sector. Given the persistence of the informal sector, and given the importance of women-owned enterprise creation for jobs and gender equity, more policy measures focused on enhancing access to inputs for female-owned enterprises are important to maximize women's contributions to India's economic growth See Less -
Brief 87096 APR 01, 2014
Ghani, Ejaz; Kanbur, Ravi; O'Connell Stephen D.
Policy makers in both developed and developing countries want to accelerate spatial development, make cities more competitive, attract new entrepreneurs, boost economic growth, and promote job creation. ... See More + These are commendable goals given that city populations in developing countries are expected to double from 2 billion to 4 billion people between 2000 and 2030. So what makes some cities more competitive than others? This note examines city competitiveness in India through the lens of spatial location choices of new and young entrepreneurs using plant-level data from the manufacturing and services sectors, including formal and informal operations. Findings show that the two most consistent factors that predict overall entrepreneurship for a district are its population's level of education and the quality of local physical infrastructure; these patterns are true for manufacturing and services. Agglomeration economies are much stronger in India than in the United States, but there is much greater variation in spatial outcomes in India than in the United States. Micro evidence for India also suggests that while strict labor regulations discourage formal sector entry, better household banking environments encourage entry into the informal sectors. Informal sectors conform much more closely to the overall contours of India's economic geography than formal sectors. Policy makers looking to promote competitiveness in their local areas have several policy levers to exploit. See Less -
Brief 83905 JAN 01, 2014
Ghani, Ejaz; Kerr, William; O'Connell, Stephen D.
This economic premise examines the link between highways and spatial development. The golden quadrilateral (GQ) highway project in India- 5,846 kilo meter (km) of highways linking four major urban hubs- improved the connectivity and market accessibility of districts close to the highway compared to those more removed. ... See More + Non-nodal districts located within 0-10 km from the highway experienced substantial increases in entry of new enterprises. The highways facilitated a more natural sorting of industries that are land and building intensive, improved efficiency in the manufacturing industries, and encouraged decentralization of urban transformation by making intermediate cities more attractive. Understanding these patterns is important for policy makers, because well-targeted infrastructure projects can improve resource reallocation, accelerate spatial development, and also promote shared prosperity. See Less -
Brief 83146 DEC 01, 2013
Ghani, Ejaz; Goswami, Arti Grover; Kerr, William R.
Inexorable urbanization and formalization have been the expectations in development discourse. Indeed, measures of urbanization and formalization have been provided and used as indicators of development. ... See More + But while urbanization has proceeded apace in developing countries, formalization has slowed significantly over the past quarter century. These disconnect raises questions for development analysis and development policy. Why did one expect urbanization and formalization to go together in the first place? Is the link between urbanization and formalization more complex than what had once thought? What then explains the recent disconnect between urbanization and formalization? Is formalization a reasonable policy goal? May urbanization policies and formalization policies conflict? If so, what can be done to resolve the conflicts? These are the questions this paper addresses. The paper has three core sections. The first section asks what exactly is meant by formality and informality. The second section turns to urbanization processes and asks how they intersect with and interact with the incentives to formalize. The third section looks at policy. Each view of how urbanization feeds formalization has distinctive policy conclusions. See Less -
Working Paper 84258 NOV 01, 2013
Ghani, Ejaz; Kanbur, Ravi
This paper examines the specialization and diversity of manufacturing industries within Indian districts. Prior to India's recent economic growth and liberalization, specialization levels in 1989 were substantially higher than similar metrics calculated for the United States. ... See More + From 1989 to 2010, average specialization levels for Indian districts declined to a level that is now quite comparable to the United States. Diversity levels similarly increased. Specialization and diversity levels in India are becoming more persistent with time. Manufacturing plants display higher productivity in districts that display both properties. From 1989 to 2010, manufacturing employment growth was higher in districts that were more specialized at the start of the period. See Less -
Policy Research Working Paper WPS6648 OCT 01, 2013
Ghani, Ejaz; Kerr, William R.; Tewari, Ishani
This paper analyzes the scale and productivity consequences of varied input use in Indian manufacturing using detailed plant-level data. Counts of distinct material inputs are higher in urban settings than in rural locations, unconditionally and conditional on plant size, and they are also higher in the organized sector than in the unorganized sector. ... See More + At the district level, higher input usage in the organized sector is generally observed in wealthier districts and those with greater literacy rates. If looking within states, the usage is more closely associated with electricity access, population density, and closer spatial proximity to one of India's largest cities. Plants in the organized sector utilizing a greater variety of inputs display higher productivity, with the effects mostly concentrated among smaller plants with fewer than 50 employees. For the unorganized sector, there is little correlation of input counts and local conditions, for better or for worse, and a more modest link to productivity outcomes. See Less -
Policy Research Working Paper WPS6656 OCT 01, 2013
Ghani, Ejaz; Kerr, William R.; O'Connell, Stephen D.
This study examines whether political empowerment of women affects their economic participation. In the context of mandated political representation reform for women in India, the study finds that the length of exposure to women politicians affects overall female labor force participation. ... See More + These effects seem to arise through direct and indirect channels: political representation of women directly affects hours of work assigned to women under the recent national public works program, the Mahatma Gandhi National Rural Employment Guarantee Scheme. In addition, the level of access to public goods, as influenced by exposure to women leaders over time, increases the likelihood of women being engaged in the labor force. The findings suggest that women's participation in politics could be a useful policy tool to increase both the supply of and the demand for labor market opportunities for women, potentially helping to stem India's declining female labor force participation rate. See Less -
Policy Research Working Paper WPS6675 OCT 01, 2013
Ghani, Ejaz; Mani, Anandi; O'Connell, Stephen D.
This paper examines the interaction between formal (organized) and informal (unorganized) plants in the manufacturing sector in India. How has the size and productivity of the plants in the organized sector affected the plants in the unorganized sector? ... See More + How have informal plants affected formal plants? Are the magnitudes of the effects symmetric in either direction? The evidence shows that there are positive horizontal and vertical spillovers in each direction. Informal firms are an important supplier of inputs to formal firms. Employment and output in the organized sector is greater in those states in India that have a greater presence of unorganized suppliers of inputs. Conversely, unorganized employment and output are greater in states that have a greater presence of organized buyers of inputs. But there are two important asymmetries in the relationship between the organized and unorganized sectors. First, the unorganized sector is much more dependent on and responsive to organized sector presence than vice versa. Second, unorganized sector productivity is dependent on and responsive to organized sector productivity and presence but the reverse is not true. See Less -
Policy Research Working Paper WPS6588 SEP 01, 2013
Ghani, Ejaz; O'Connell, Stephen D.; Sharma, Gunjan
The informal sector in India has been exceptionally persistent over the past two decades. Is this a bad thing? Not necessarily. This paper shows that a substantial share of the persistence in India's unorganized manufacturing sector is due to the rapid increase in female-owned businesses. ... See More + Had women's participation remained in the proportion to male-owned businesses that was evident in 1994, the unorganized manufacturing sector would have declined in share rather than increased. Most of these new female-owned businesses are opened in the household and at a small scale, about a third of the size of a typical male-owned business in the informal sector. Yet, it appears that these businesses offer economic opportunities not otherwise present and a transition for some women from unpaid domestic work. See Less -
Policy Research Working Paper WPS6612 SEP 01, 2013
Ghani, Ejaz; Kerr, William R.; O'Connell, Stephen D.
This study investigates the impact of the Golden Quadrilateral highway project on the urban and rural growth of Indian manufacturing. The Golden Quadrilateral project upgraded the quality and width of 5,846 km of roads in India. ... See More + The study uses a difference-in-difference estimation strategy to compare non-nodal districts based on their distance from the highway system. For the organized portion of the manufacturing sector, the Golden Quadrilateral project led to improvements in both urban and rural areas of non-nodal districts located 0-10 km from the Golden Quadrilateral. These higher entry rates and increases in plant productivity are not present in districts 10-50 km away. The entry effects are stronger in rural areas of districts, but the differences between urban and rural areas are modest relative to the overall effect. The productivity consequences are similar in both locations. The most important difference appears to be the greater activation of urban areas near the nodal cities and rural areas in remote locations along the Golden Quadrilateral network. For the unorganized sector, no material effects are found from the Golden Quadrilateral upgrades in either setting. These findings suggest that in the time frames that we can consider -- the first five to seven years during and after upgrades -- the economic effects of major highway projects contribute modestly to the migration of the organized sector out of Indian cities, but are unrelated to the increased urbanization of the unorganized sector. See Less -
Policy Research Working Paper WPS6620 SEP 01, 2013
Ghani, Ejaz; Goswami, Arti Grover; Kerr, William R.
This note examines the recent spatial development of India. Services, and to a lesser extent manufacturing, are increasingly concentrating in high-density clusters. ... See More + This stands in contrast with the United States, where in the last decades services have tended to grow fastest in medium-density locations, such as Silicon Valley. India's experience is not common to all fast-growing developing economies. The spatial growth pattern of China looks more similar to that of the United States than to that of India. What is preventing India's medium-density cities from growing and taking full advantage of agglomeration forces? Future research should focus on identifying the barriers to growth in medium-density places. In the last two decades, the Indian economy has been growing at unprecedented rates, but that development has led to widening spatial disparities (Ghani 2010a). While some cities, such as Hyderabad, have become major high-tech hubs with world-class companies and real estate development reminiscent of Silicon Valley, many others remain mired in poverty and stagnation. Given the huge congestion in cities such as Mumbai or Kolkata, this seems to be a reasonable policy concern in the context of India. However, those cities also benefit from important agglomeration economies, so there is a need to analyze the trade-offs between the costs and benefits of economic density before articulating policy recommendations. Such an analysis should provide valuable insights into what types of spatial and regional policy interventions may be useful and effective. Compared to other countries at similar levels of development, India's growth stems disproportionately from its burgeoning service sector (Ghani 2010b). The evidence of agglomeration in the U.S. service sector is in cities with densities of employment below 150 employees per square kilometer, while in India, evidence of agglomeration is found in cities with densities above this threshold. In other words, if the United States is used as the efficient benchmark, then 150 employees per square kilometer is the ideal density to take advantage of agglomeration economies. In India, however, these medium-density cities are the worst places. This suggests that the costs of congestion in India are either much smaller than in the United States, the agglomeration forces are much larger than in the United States, or that there are some frictions, policies, and a general lack of infrastructure in medium-density cities that prevent them from growing faster, therefore favoring concentration in high-density areas. See Less -
Brief 81339 SEP 01, 2013
Desmet, Klaus; Ghani, Ejaz; O'Connell, Stephen; Rossi-Hansberg, Esteban
This paper presents an exploration at the intersection of four important themes in the current development discourse: urbanization, agglomeration benefits, gender and informality. ... See More + Focusing on the important policy objective of new enterprise creation in the informal sector, it asks and answers four specific questions on the impact of urbanization and gender. It finds that (i) the effect of market access to inputs, on creation of new enterprises in the informal sector, is greater in more urbanized areas; (ii) This "urbanization gradient" also exists separately for the creation of female owned enterprises and male owned enterprises; (iii) there is a differential impact of female specific market access compared to male specific market access, on female owned enterprise creation in the informal sector ; and (iv) gender specific market access to inputs matters equally in more or less urbanized areas. Among the policy implications of these findings are that (i) new enterprise creation by females can be encouraged by urbanization, but (ii) the effect can be stronger by improving female specific market access, especially to inputs. The analysis in this paper opens up a rich research agenda, including further investigation of the nature of input based versus output based perspectives on agglomeration benefits, and exploration of policy instruments that can improve female specific market access, which is shown to increase female owned enterprise creation. See Less -
Policy Research Working Paper WPS6553 AUG 01, 2013
Ghani, Ejaz; Kanbur, Ravi; O'Connell, Stephen D.
India and Pakistan, the two largest economies in South Asia, share a common border, culture and history. Despite the benefits of proximity, the two neighbors have barely traded with each other. ... See More + In 2011, trade with Pakistan accounted for less than half a percent of India's total trade, whereas Pakistan's trade with India was 5.4 percent of its total trade. However, the recent thaw in India-Pakistan trade relations could signal a change. Pakistan has agreed to grant most favored nation status to India. India has already granted most favored nation status to Pakistan. What will be the gains from trade for the two countries? Will they be inclusive? Is most favored nation status a panacea? Should the granting of most favored nation status be accompanied by improvements in trade facilitation, infrastructure, connectivity, and logistics to reap the true benefits of trade and to promote shared prosperity? This paper attempts to answer these questions. It examines alternative scenarios on the gains from trade and it finds that what makes most favored nation status work is the trade facilitation that surrounds it. The results of the general equilibrium simulation indicate Pakistan's most favored nation status to India would generate larger benefits if it were supported by improved connectivity and trade facilitation measures. In other words, gains from trade would be small in the absence of improved connectivity and trade facilitation. The idea of trade facilitation is simple: implement measures to reduce the cost of trading across borders by improving infrastructure, institutions, services, policies, procedures, and market-oriented regulatory systems. The returns can be huge, even with modest resources and limited capacity. The dividends of trade facilitation can be shared by all. See Less -
Policy Research Working Paper WPS6483 JUN 01, 2013
De, Prabir; Raihan, Selim; Ghani, Ejaz
Malaysias structural transformation from low to middle income has made it one of the most prominent manufacturing exporters in the world. However, in the competitive global economy, like many other middle-income economies, it is sandwiched between low-wage economies on one side and more innovative advanced economies on the other. ... See More + What can Malaysia do? Does Malaysia need a new growth strategy? See Less -
Brief 78651 JUN 01, 2013
Flaaen, Aaron; Ghani, Ejaz; Mishra, Saurabh
The transformation of India's unorganized sector is important to its modernization, growth, and attainment of regional economic equality. This paper documents several key facts about India's unorganized sector in manufacturing and services. ... See More + First, the unorganized sector is large, accounting for more than 99 percent of establishments and 80 percent of employment in manufacturing. Second, the unorganized sector is stubbornly persistent -- it accounted for 81 percent of manufacturing employment in 1989 and 2005. Third, this persistence is not due to particular subsets of industries or states, as most industries and states show limited change in unorganized sector employment shares. Fourth, the degree to which localized unorganized activity exists is important as it is associated with weaker production functions for manufacturing firms. Building from these facts, the paper investigates conditions promoting transformation by state-industry. Decomposition exercises find that both within and between adjustments for state-industries weakly reduce unorganized sector shares. The aggregate persistence instead comes from the covariance term, where fast-growing state-industries witness rising unorganized sector activity. Regressions quantify that growth in the organized sector by state-industry reduces the unorganized sector employment share, but only marginally reduces employment levels in unorganized activity. Analysis of the establishment size distribution highlights that entrepreneurship and larger organized sector plants are most important for transitions in the manufacturing sector, while small establishments play a key role in the services sector. See Less -
Policy Research Working Paper WPS6454 MAY 01, 2013
Ghani, Ejaz; Kerr, William R.; O'Connell, Stephen D.
|Title||Document Date||Report No.||Document Type||Also available in|
|The misallocation of land and other factors of production in India (English) See More +||MAR 23, 2015||WPS7221||Policy Research Working Paper|
|Informal tradables and the employment growth of Indian manufacturing (English) See More +||MAR 02, 2015||WPS7206||Policy Research Working Paper|
|Spatial dynamics of electricity usage in India (English) See More +||OCT 01, 2014||WPS7055||Policy Research Working Paper|
|Can service be a growth escalator in low-income countries ? : Can service be a growth escalator in low-income countries ? (English) See More +||JUL 01, 2014||WPS6971||Policy Research Working Paper|
|Regional diversity and inclusive growth in Indian cities (English) See More +||JUN 01, 2014||WPS6919||Policy Research Working Paper|
|Urbanization, gender, and business creation in the informal sector in India (English) See More +||APR 01, 2014||87096||Brief|
|What makes cities more competitive? Lessons from India (English) See More +||JAN 01, 2014||83905||Brief|
|Highways and spatial development (English) See More +||DEC 01, 2013||83146||Brief|
|Urbanization and (in) formalization (English) See More +||NOV 01, 2013||84258||Working Paper|
|Specialization, diversity, and Indian manufacturing growth (English) See More +||OCT 01, 2013||WPS6648||Policy Research Working Paper|
|Input usage and productivity in Indian manufacturing plants (English) See More +||OCT 01, 2013||WPS6656||Policy Research Working Paper|
|Can political empowerment help economic empowerment ? women leaders and female labor force participation in India (English) See More +||OCT 01, 2013||WPS6675||Policy Research Working Paper|
|Friend or foe or family ? a tale of formal and informal plants in India (English) See More +||SEP 01, 2013||WPS6588||Policy Research Working Paper|
|Female business ownership and informal sector persistence (English) See More +||SEP 01, 2013||WPS6612||Policy Research Working Paper|
|The golden quadrilateral highway project and urban/rural manufacturing in India (English) See More +||SEP 01, 2013||WPS6620||Policy Research Working Paper|
|India's spatial development (English) See More +||SEP 01, 2013||81339||Brief|
|Urbanization and agglomeration benefits : gender differentiated impacts on enterprise creation in India's informal sector (English) See More +||AUG 01, 2013||WPS6553||Policy Research Working Paper|
|What does MFN trade mean for India and Pakistan ? can MFN be a Panacea ? (English) See More +||JUN 01, 2013||WPS6483||Policy Research Working Paper|
|How to avoid middle-income traps? : evidence from Malaysia (English) See More +||JUN 01, 2013||78651||Brief|
|The exceptional persistence of India's unorganized sector (English) See More +||MAY 01, 2013||WPS6454||Policy Research Working Paper|