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Is India’s Manufacturing Sector Moving Away From Cities?

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Author Info

  • Ejaz Ghani

    ()
    (World Bank)

  • Arti Grover Goswami

    ()
    (World Bank)

  • William R. Kerr

    ()
    (Harvard Business School, Entrepreneurial Management Unit)

Abstract

This paper investigates the urbanization of the Indian manufacturing sector by combining enterprise data from formal and informal sectors. We find that plants in the formal sector are moving away from urban and into rural locations, while the informal sector is moving from rural to urban locations. While the secular trend for India's manufacturing urbanization has slowed down, the localized importance of education and infrastructure have not. Our results suggest that districts with better education and infrastructure have experienced a faster pace of urbanization, although higher urban-rural cost ratios cause movement out of urban areas. This process is associated with improvements in the spatial allocation of plants across urban and rural locations. Spatial location of plants has implications for policy on investments in education, infrastructure, and the livability of cities. The high share of urbanization occurring in the informal sector suggests that urbanization policies that contain inclusionary approaches may be more successful in promoting local development and managing its strains than those focused only on the formal sector.

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Bibliographic Info

Paper provided by Harvard Business School in its series Harvard Business School Working Papers with number 12-090.

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Length: 42 pages
Date of creation: Apr 2012
Date of revision:
Handle: RePEc:hbs:wpaper:12-090

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Keywords: Urbanization; structural transformation; transition; development; manufacturing; agglomeration; industrialization; growth; India.;

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References

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  1. Desmet, Klaus & Ghani, Ejaz & O'Connell, Stephen & Rossi-Hansberg, Esteban, 2012. "The spatial development of India," Policy Research Working Paper Series 6060, The World Bank.
  2. Henderson, J. Vernon & Wang, Hyoung Gun, 2007. "Urbanization and city growth: The role of institutions," Regional Science and Urban Economics, Elsevier, vol. 37(3), pages 283-313, May.
  3. Griliches, Zvi & Regev, Haim, 1995. "Firm productivity in Israeli industry 1979-1988," Journal of Econometrics, Elsevier, vol. 65(1), pages 175-203, January.
  4. Ejaz Ghani & William R. Kerr & Stephen D. O'Connell, 2013. "Local industrial structures and female entrepreneurship in India," Journal of Economic Geography, Oxford University Press, vol. 13(6), pages 929-964, November.
  5. Klaus Desmet & Esteban Rossi-Hansberg, 2009. "Spatial Development," NBER Working Papers 15349, National Bureau of Economic Research, Inc.
  6. Alain Bertaud & Stephen Malpezzi, 1995. "Measuring the Costs and Benefits of Urban Land Use Regulation: A Simple Model with an Application to Malaysia," Wisconsin-Madison CULER working papers 95-03, University of Wisconsin Center for Urban Land Economic Research.
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  8. Kathuria, Vinish & Seethamma Natarajan, Rajesh Raj & Sen, Kunal, 2010. "Organized versus Unorganized Manufacturing Performance in India in the Post-Reform Period," MPRA Paper 20317, University Library of Munich, Germany.
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  10. Somik Lall, 2007. "Infrastructure and regional growth, growth dynamics and policy relevance for India," The Annals of Regional Science, Springer, vol. 41(3), pages 581-599, September.
  11. Esteban Rossi-Hansberg & Mark L. J. Wright, 2006. "Establishment size dynamics in the aggregate economy," Staff Report 382, Federal Reserve Bank of Minneapolis.
  12. Ejaz Ghani & William R. Kerr & Stephen D. O'Connell, 2011. "Spatial Determinants of Entrepreneurship in India," NBER Working Papers 17514, National Bureau of Economic Research, Inc.
  13. Joris Knoben, 2011. "The Geographic Distance of Relocation Search: An Extended Resource‐Based Perspective," Economic Geography, Clark University, vol. 87(4), pages 371-392, October.
  14. Megha Mukim, 2011. "Industry and the urge to cluster: a study of the informal sector in India," LSE Research Online Documents on Economics 33592, London School of Economics and Political Science, LSE Library.
  15. Taryn Dinkelman, 2011. "The Effects of Rural Electrification on Employment: New Evidence from South Africa," American Economic Review, American Economic Association, vol. 101(7), pages 3078-3108, December.
  16. Nataraj, Shanthi, 2011. "The impact of trade liberalization on productivity: Evidence from India's formal and informal manufacturing sectors," Journal of International Economics, Elsevier, vol. 85(2), pages 292-301.
  17. Joris Knoben & L. A. G. (Leon) Oerlemans & R. P. J. H. (Roel) Rutten, 2008. "The Effects of Spatial Mobility on the Performance of Firms," Economic Geography, Clark University, vol. 84(2), pages 157-183, 04.
  18. Lall,Somik V. & Gun Wang, Hyoung & Deichmann, Uwe, 2010. "Infrastructure and City Competitiveness in India," Working Paper Series UNU-WIDER Working Paper W, World Institute for Development Economic Research (UNU-WIDER).
  19. Amin, Mohammad & Mattoo, Aaditya, 2008. "Human capital and the changing structure of the Indian economy," Policy Research Working Paper Series 4576, The World Bank.
  20. J. Vernon Henderson, 2010. "Cities And Development," Journal of Regional Science, Wiley Blackwell, vol. 50(1), pages 515-540.
  21. Zvi Griliches & Haim Regev, 1995. "Productivity and Firm Turnover in Israeli Industry: 1979-1988," NBER Working Papers 4059, National Bureau of Economic Research, Inc.
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Citations

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Cited by:
  1. Ghani, Ejaz & Kerr, William R. & Tewari, Ishani, 2013. "Specialization, diversity, and Indian manufacturing growth," Policy Research Working Paper Series 6648, The World Bank.
  2. Tripathi, Sabyasachi, 2012. "Estimating Urban Agglomeration Economies for India: A New Economic Geography Perspective," MPRA Paper 43501, University Library of Munich, Germany.
  3. Ghani, Ejaz & Goswami, Arti Grover & Kerr, William R., 2013. "Highway to success in India : the impact of the golden quadrilateral project for the location and performance of manufacturing," Policy Research Working Paper Series 6320, The World Bank.
  4. 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.
  5. Ghani, Ejaz & Goswami, Arti Grover & Kerr, William R., 2013. "The golden quadrilateral highway project and urban/rural manufacturing in India," Policy Research Working Paper Series 6620, The World Bank.

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