Firm-Level Input Distortion in Indian States

This paper measures trends in factor misallocation in India between 1999 and 2014, using data from a rich panel of Indian firms. The misallocation of a factor is modeled as an adjustment cost, that is, an implicit variable cost incurred by a firm w...

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Main Authors:	Chaurey, Ritam, Manghnani, Ruchita, Perego, Viviana M. E., Sharma, Siddharth
Format:	Working Paper
Language:	English
Published:	World Bank, Washington, DC 2022
Subjects:	MISALLOCATION FIRMS DISTORTIONS LAND MARKET LABOR MARKET FACTOR MISALLOCATION FIRM PERFORMANCE COMPETITIVENESS PRODUCTIVITY REALLOCATION OF RESOURCES RESOURCE ALLOCATION NATIONAL LABOR POLICY MANUFACTURING LAND USE
Online Access:	http://documents.worldbank.org/curated/en/099535305172211094/IDU03a5833790e14d04be0084b301c940b591efe http://hdl.handle.net/10986/37451

id	okr-10986-37451
recordtype	oai_dc
spelling	okr-10986-374512022-05-19T05:10:35Z Firm-Level Input Distortion in Indian States Chaurey, Ritam Manghnani, Ruchita Perego, Viviana M. E. Sharma, Siddharth MISALLOCATION FIRMS DISTORTIONS LAND MARKET LABOR MARKET FACTOR MISALLOCATION FIRM PERFORMANCE COMPETITIVENESS PRODUCTIVITY REALLOCATION OF RESOURCES RESOURCE ALLOCATION NATIONAL LABOR POLICY MANUFACTURING LAND USE This paper measures trends in factor misallocation in India between 1999 and 2014, using data from a rich panel of Indian firms. The misallocation of a factor is modeled as an adjustment cost, that is, an implicit variable cost incurred by a firm when using that factor. Trends in the adjustment cost are estimated using a new adaptation of the firm-level cost-minimization approach. The paper documents these trends for four factors of production (permanent labor, contract labor, land, and fixed capital) across Indian states and by firm size. Overall, the findings show that adjustment costs declined over time for labor and land but with significant heterogeneity with respect to state growth rate and firm size. Using these stylized facts on trends in factor adjustment costs, as well as in-depth field interviews with firms in two Indian states, the paper also discusses potential policy developments behind these trends, including a preliminary examination of the role of state-level governance in the implementation of relevant factor market policies. 2022-05-18T17:38:04Z 2022-05-18T17:38:04Z 2022-05-17 Working Paper http://documents.worldbank.org/curated/en/099535305172211094/IDU03a5833790e14d04be0084b301c940b591efe http://hdl.handle.net/10986/37451 English Policy Research Working Papers;10048 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo World Bank World Bank, Washington, DC Policy Research Working Paper Publications & Research India
repository_type	Digital Repository
institution_category	Foreign Institution
institution	Digital Repositories
building	World Bank Open Knowledge Repository
collection	World Bank
language	English
topic	MISALLOCATION FIRMS DISTORTIONS LAND MARKET LABOR MARKET FACTOR MISALLOCATION FIRM PERFORMANCE COMPETITIVENESS PRODUCTIVITY REALLOCATION OF RESOURCES RESOURCE ALLOCATION NATIONAL LABOR POLICY MANUFACTURING LAND USE
spellingShingle	MISALLOCATION FIRMS DISTORTIONS LAND MARKET LABOR MARKET FACTOR MISALLOCATION FIRM PERFORMANCE COMPETITIVENESS PRODUCTIVITY REALLOCATION OF RESOURCES RESOURCE ALLOCATION NATIONAL LABOR POLICY MANUFACTURING LAND USE Chaurey, Ritam Manghnani, Ruchita Perego, Viviana M. E. Sharma, Siddharth Firm-Level Input Distortion in Indian States
geographic_facet	India
relation	Policy Research Working Papers;10048
description	This paper measures trends in factor misallocation in India between 1999 and 2014, using data from a rich panel of Indian firms. The misallocation of a factor is modeled as an adjustment cost, that is, an implicit variable cost incurred by a firm when using that factor. Trends in the adjustment cost are estimated using a new adaptation of the firm-level cost-minimization approach. The paper documents these trends for four factors of production (permanent labor, contract labor, land, and fixed capital) across Indian states and by firm size. Overall, the findings show that adjustment costs declined over time for labor and land but with significant heterogeneity with respect to state growth rate and firm size. Using these stylized facts on trends in factor adjustment costs, as well as in-depth field interviews with firms in two Indian states, the paper also discusses potential policy developments behind these trends, including a preliminary examination of the role of state-level governance in the implementation of relevant factor market policies.
format	Working Paper
author	Chaurey, Ritam Manghnani, Ruchita Perego, Viviana M. E. Sharma, Siddharth
author_facet	Chaurey, Ritam Manghnani, Ruchita Perego, Viviana M. E. Sharma, Siddharth
author_sort	Chaurey, Ritam
title	Firm-Level Input Distortion in Indian States
title_short	Firm-Level Input Distortion in Indian States
title_full	Firm-Level Input Distortion in Indian States
title_fullStr	Firm-Level Input Distortion in Indian States
title_full_unstemmed	Firm-Level Input Distortion in Indian States
title_sort	firm-level input distortion in indian states
publisher	World Bank, Washington, DC
publishDate	2022
url	http://documents.worldbank.org/curated/en/099535305172211094/IDU03a5833790e14d04be0084b301c940b591efe http://hdl.handle.net/10986/37451
_version_	1764487181233029120

Firm-Level Input Distortion in Indian States

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