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Indian manufacturing : a slow sector in a rapidly growing economy (English)

This paper investigates the determinants of productivity in Indian manufacturing industries during the period 1988-2000. Using two-digit industry level data for the Indian states, we find evidence of imperfect interindustry and interstate labor mobility as well as misallocation of resources across industries and states. Trade liberalization increases productivity in all industries across all states, and productivity is higher in the less protected industries. These effects of protection and trade liberalization are more pronounced in states that have relatively more flexible labor markets. Similar effects are also found in the case of employment, capital stock and investment. Furthermore, labor market flexibility, independent of other policies, has a positive effect on productivity. Importantly, per capita state development expenditure seems to be the strongest and the most robust predictor of productivity, employment, capital stock and investment. Industrial delicensing increases both labor productivity and employment but only in the states with flexible labor market institutions. Even after controlling for delicensing, the analysis shows that trade liberalization has a productivity-enhancing effect. Finally, trade liberalization benefits most the export-oriented industries located in states with flexible labor-market institutions.

Details

  • Author

    Mitra,Devashish, Ural, Beyza P.

  • Document Date

    2007/05/01

  • Document Type

    Policy Research Working Paper

  • Report Number

    WPS4233

  • Volume No

    1

  • Total Volume(s)

    1

  • Country

    India,

  • Region

    South Asia,

  • Disclosure Date

    2010/07/01

  • Disclosure Status

    Disclosed

  • Doc Name

    Indian manufacturing : a slow sector in a rapidly growing economy

  • Keywords

    flexible labor market;logarithm of real per capita;Labor Market Flexibility;per capita income level;high levels of output;impact of trade reforms;rigid labor market;labor productivity;increase in labor;effect of trade;interstate labor mobility;number of workers;misallocation of resources;industry and state;total factor productivity;Rule of Law;bilateral trade flow;economies of scale;division of labor;labor market institution;coefficient of variation;effect on employment;department of economics;quality of education;quality of public;policy and institution;growth and development;measure of trade;expenditure per capita;private economic agents;price of oil;debt service ratio;total capital stock;role of development;labor market restrictions;foreign exchange transaction;labor demand equation;social insurance system;export oriented industry;measure of inequality;cost of labor;minimum efficient scale;gdp growth rate;impact of policy;reduction in tariffs;consumption of good;labor demand elasticity;benefits in kind;real exchange rate;total wage bill;wholesale price index;engine of growth;foreign direct investment;response to shock;measure of corruption;endogenous growth model;output per worker;trade liberalization increases;Labor Law;policy variable;institutional variables;production function;social infrastructure;trade protection;manufacturing industry;manufacturing sector;capital accumulation;protected industry;labor regulation;Trade Policies;labor-market institution;Trade Policy;negative sign;geographical variable;tariff rate;factor accumulation;property right;macroeconomic environment;price deflator;standard deviation;productivity level;stock market;permanent worker;International Trade;labor reallocation;comparative advantage;negative effect;nominal rate;capital good;positive impact;alternative specification;intermediate input;trade literature;indian states;market size;economic reform;market mechanism;participatory politics;invest capital;expropriation risk;book value;competitive effect;private return;imported inputs;fixed effect;data model;export promotion;panel data;aggregate output;bureaucratic quality;expenditure growth;investment rate;macroeconomic crisis;index time;expenditure increase;infrastructure provision;factor return;labor use;empirical issue;data issue;food subsidies;factor market;inequality trend;real value;natural calamity;transitional nature;linguistic difference;trade regime;industrial expansion;important policy;productivity growth;Technology Transfer;gross output;skill formation;transport equipment;manufacturing plant;state size;independent variable;real capital;coefficient estimate;labor-market flexibility;aggregate variable;global production;import product;vested interests;import penetration;labor institutions;lowering protection;maximum benefit;econometric analysis;moral hazard;export restrictions;aggregate economy;fiscal deficit;commercial debt;regulatory apparatus;worst forms;home countries;econometric technique;cohesive society;political institution;policy restrictions;Social Conflict;entry barrier;tariff level;domestic currencies;state trading;maximum tariff;quantitative restriction;discretionary decision;import regime;economic institution;trade share;summing up;trading partner;trade monopoly;land area;instrumental variable;general elections;license restriction;restrictive trade;relative price;financial system;competitive edge;domestic investment;external payment;domestic plant;central planning;efficiency gain;primary source;employment performance;average performance;informal rule;institutional framework;macro level;Industrial Policies;home country;Industrial Policy;tariff cut;local condition;democratic process;public affair;behavioral norm;individual producers;public health;demand curve;monopoly power;potential investor;government expenditure;export incentive;human capital;reform objectives;exchange market;trade union;job description;labor contract;market condition;standing order;job security

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Citation

Mitra,Devashish Ural, Beyza P.

Indian manufacturing : a slow sector in a rapidly growing economy (English). Policy, Research working paper ; no. WPS 4233 Washington, D.C. : World Bank Group. http://documents.worldbank.org/curated/en/967651468041414512/Indian-manufacturing-a-slow-sector-in-a-rapidly-growing-economy