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Industry and the Urge to Cluster: A Study of the Informal Sector in India

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  • Megha Mukim

Abstract

This paper studies the determinants of firm location choice at the district-level in India to gauge the relative importance of agglomeration economies vis-à-vis good business environment. A peculiar characteristic of the Indian economy is that the unorganised nonfarm sector accounts for 43.2% of NDP and employs 71.6% of the total workforce. I analyse National Sample Survey data that covers over 4.4 million firms, in both unorganised sectors - manufacturing and services. The empirical analysis is carried out using count models, and I instrument with land revenue institutions to deal with possible endogeneity bias. I find that buyer-suppler linkages and industrial diversity make a district more attractive to economic activity, whilst the quality and level of infrastructure are also important. I conclude that public policy may be limited in its ability to encourage relocation of informal firms.

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Bibliographic Info

Paper provided by Spatial Economics Research Centre, LSE in its series SERC Discussion Papers with number 0072.

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Date of creation: Mar 2011
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Handle: RePEc:cep:sercdp:0072

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Web page: http://www.spatialeconomics.ac.uk/SERC/publications/default.asp

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Keywords: Agglomeration economies; informal sector; location choice;

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Cited by:
  1. Ghani, Ejaz & Kerr, William R. & O'Connell, Stephen D., 2013. "Female business ownership and informal sector persistence," Policy Research Working Paper Series 6612, The World Bank.
  2. Ghani, Ejaz & Kanbur, Ravi & O'Connell, Stephen D., 2014. "Urbanization and Agglomeration Benefits: Gender Differentiated Impacts on Enterprise Creation in India's Informal Sector," Working Papers, Cornell University, Department of Applied Economics and Management 180160, Cornell University, Department of Applied Economics and Management.
  3. Ghani, Ejaz & Goswami, Arti Grover & Kerr, William R., 2012. "Is India's manufacturing sector moving away from cities ?," Policy Research Working Paper Series 6271, The World Bank.
  4. Ejaz Ghani & William R. Kerr & Stephen D. O'Connell, 2014. "Political Reservations and Women’s Entrepreneurship in India," NBER Working Papers 19868, National Bureau of Economic Research, Inc.
  5. Mukim, Megha, 2013. "Coagglomeration of formal and informal industry : evidence from India," Policy Research Working Paper Series 6622, The World Bank.
  6. Ghani, Ejaz & Kerr, William R. & O'Connell, Stephen D., 2013. "The exceptional persistence of India's unorganized sector," Policy Research Working Paper Series 6454, The World Bank.
  7. Ghani, Ejaz & O'Connell, Stephen D. & Sharma, Gunjan, 2013. "Friend or foe or family ? a tale of formal and informal plants in India," Policy Research Working Paper Series 6588, The World Bank.

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