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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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File URL: http://eprints.lse.ac.uk/33592/
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Bibliographic Info

Paper provided by London School of Economics and Political Science, LSE Library in its series LSE Research Online Documents on Economics with number 33592.

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Length: 63 pages
Date of creation: Mar 2011
Date of revision:
Handle: RePEc:ehl:lserod:33592

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Cited by:
  1. Ejaz Ghani & Arti Grover Goswami & William R. Kerr, 2012. "Is India's Manufacturing Sector Moving Away From Cities?," NBER Working Papers 17992, National Bureau of Economic Research, Inc.
  2. Ghani, Ejaz & Kanbur, Ravi & O'Connell, Stephen D., 2013. "Urbanization and agglomeration benefits : gender differentiated impacts on enterprise creation in India's informal sector," Policy Research Working Paper Series 6553, The World Bank.
  3. Mukim, Megha, 2013. "Coagglomeration of formal and informal industry : evidence from India," Policy Research Working Paper Series 6622, The World Bank.
  4. 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.
  5. 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.
  6. 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.
  7. 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.

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