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Complementarity between Formal and Informal Manufacturing in India: The Role of Policies and Institutions

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Author Info

  • Asha Sundaram
  • Reshad Ahsan
  • Devashish Mitra

Abstract

In this paper, we have investigated the relationship between the formal and informal manufacturing sectors in India. We find that the employment, output and the value added of the informal part of each of the manufacturing industries in the various Indian states are strongly positively correlated with the same variables for the formal part of the respective industry in these states. Our results provide support for complementarities between formal and informal manufacturing arising possibly from both agglomeration and outsourcing. We also find fairly strong support for the role of labor market flexibility in enabling this complementarity. Trade liberalization also turns out to have an important role.

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Bibliographic Info

Paper provided by School of International and Public Affairs, Columbia University in its series Working Papers with number 1116.

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Length: 47 pages
Date of creation: Apr 2012
Date of revision: Apr 2012
Handle: RePEc:ecq:wpaper:1116

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Web page: http://indianeconomy.columbia.edu/
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Related research

Keywords: India; Formal Manufacturing; Informal Manufacturing; Policies; Institutions; employment; output; agglomeration; outsourcing; value added;

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References

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  1. Petia Topalova, 2007. "Trade Liberalization, Poverty and Inequality: Evidence from Indian Districts," NBER Chapters, in: Globalization and Poverty, pages 291-336 National Bureau of Economic Research, Inc.
  2. Rana Hasan & Devashish Mitra & K.V. Ramaswamy, 2003. "Trade Reforms, Labor Regulations and Labor-Demand Elasticities: Empirical Evidence from India," NBER Working Papers 9879, National Bureau of Economic Research, Inc.
  3. Mitra, Devashish & Ural, Beyza P., 2007. "Indian manufacturing : a slow sector in a rapidly growing economy," Policy Research Working Paper Series 4233, The World Bank.
  4. Edward C. Norton & Hua Wang & Chunrong Ai, 2004. "Computing interaction effects and standard errors in logit and probit models," Stata Journal, StataCorp LP, vol. 4(2), pages 154-167, June.
  5. Eric V. Edmonds & Nina Pavcnik & Petia Topalova, 2007. "Trade Adjustment and Human Capital Investments: Evidence from Indian Tariff Reform," NBER Working Papers 12884, National Bureau of Economic Research, Inc.
  6. Poonam Gupta & Rana Hasan & Utsav Kumar, 2008. "Big Reforms but Small Payoffs: Explaining the Weak Record of Growth in Indian Manufacturing," India Policy Forum, Global Economy and Development Program, The Brookings Institution, vol. 5(1), pages 59-123.
  7. Panagariya, Arvind, 2011. "India: The Emerging Giant," OUP Catalogue, Oxford University Press, number 9780199751563.
  8. Asha Sundaram, 2011. "The Impact of Trade Liberalization on Micro Enterprises: Do Banks Matter? Evidence from Indian Manufacturing," Working Papers 225, Economic Research Southern Africa.
  9. Rana Hasan & Devashish Mitra & Beyza P. Ural, 2006. "Trade Liberalization, Labor-Market Institutions, and Poverty Reduction: Evidence from Indian States," India Policy Forum, Global Economy and Development Program, The Brookings Institution, vol. 3(1), pages 71-122.
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Cited by:
  1. Amit Basole & Deepankar Basu & Rajesh Bhattacharya, 2014. "Determinants and Impact of Subcontracting: Evidence from India’s Informal Manufacturing Sector," Working Papers 2014_08, University of Massachusetts Boston, Economics Department.

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