Indian Manufacturing : A Slow Sector in a Rapidly Growing Economy
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 mob...
| Main Authors: | , |
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| Format: | Policy Research Working Paper |
| Language: | English |
| Published: |
World Bank, Washington, DC
2012
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/2007/05/7611962/indian-manufacturing-slow-sector-rapidly-growing-economy http://hdl.handle.net/10986/7112 |
| Summary: | 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. |
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