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Subcontracting and the Size and Composition of the Informal Sector: Evidence from Indian Manufacturing

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  • Moreno-Monroy, Ana Isabel

    ()
    (University of Groningen)

  • Pieters, Janneke

    ()
    (Wageningen University)

  • Erumban, Abdul Azeez

    ()
    (University of Groningen)

Abstract

This paper analyzes the relationship between formal sector subcontracting and the evolution of the informal sector using nationally representative survey data of Indian manufacturing enterprises for the period 1995-2006. In these years of fast economic growth, subcontracting by formal enterprises gained importance, while the informal sector continued to account for 90 per cent of total manufacturing employment. In order to contrast between a 'modernization' and a 'stagnation' view on formal-informal production linkages, we test whether subcontracting is related to the size of more modern versus more traditional segments of the informal sector. The results show that formal sector subcontracting is positively related to the size of the informal sector only for the most modern informal activities, supporting the view that subcontracting is related to informal sector modernization. We find no support for the claim that the continued expansion of very traditional informal activities is related to increased outsourcing by formal manufacturing enterprises.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 6785.

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Length: 31 pages
Date of creation: Aug 2012
Date of revision:
Handle: RePEc:iza:izadps:dp6785

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Keywords: informal sector; formal sector; subcontracting; manufacturing; India;

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References

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  1. Maloney, William, 2003. "Informality revisited," Policy Research Working Paper Series 2965, The World Bank.
  2. Philippe Aghion & Robin Burgess & Stephen Redding & F Zilibotti, 2005. "The Unequal Effects of Liberalization: Evidence fromDismantling the License Raj in India," STICERD - Development Economics Papers - From 2008 this series has been superseded by Economic Organisation and Public Policy Discussion Papers, Suntory and Toyota International Centres for Economics 45, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
  3. 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.
  4. Davies, Rob & Thurlow, James, 2009. "Formal-informal economy linkages and unemployment in South Africa:," IFPRI discussion papers, International Food Policy Research Institute (IFPRI) 943, International Food Policy Research Institute (IFPRI).
  5. Günther, Isabel & Launov, Andrey, 2012. "Informal employment in developing countries," Journal of Development Economics, Elsevier, Elsevier, vol. 97(1), pages 88-98.
  6. Dibyendu Maiti, 2008. "The organisational morphology of rural industries and its dynamics in liberalised India: a study of West Bengal," Cambridge Journal of Economics, Oxford University Press, Oxford University Press, vol. 32(4), pages 577-591, July.
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Cited by:
  1. Voskoboynikov, I. & Timmer, M.P. & Vries, G.J. de & Erumban, A. A. & Wu H.X., 2011. "Deconstructing the BRICs: Structural Transformation and Aggregate Productivity Growth," GGDC Research Memorandum, Groningen Growth and Development Centre, University of Groningen GD-121, Groningen Growth and Development Centre, University of Groningen.
  2. 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.
  3. Gustavo A. Garcia, 2014. "Labor Informality: Choice or Sign of Segmentation? A Quantile Regression Approach at the Regional Lvel for Colombia," ARCHIVOS DE ECONOMÍA 011213, DEPARTAMENTO NACIONAL DE PLANEACIÓN.
  4. Amit Basole & Deepankar Basu & Rajesh Bhattacharya, 2014. "Determinants and Impact of Subcontracting: Evidence from India’s Informal Manufacturing Sector," UMASS Amherst Economics Working Papers, University of Massachusetts Amherst, Department of Economics 2014-04, University of Massachusetts Amherst, Department of Economics.
  5. 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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