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Regional Skill Supplies and Location of Firms: The Case of Information Technology Industry in India

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  • Abraham, Vinoj

Abstract

The “new economic geography” of the IT industry is shaped by two characteristic features of the industry, smaller size of the firms and zero transportation costs of its products that provide its ability of being a ‘footloose’ industry. The IT industry could locate itself in a region on the basis of two factors, namely, the nearness to large markets that ensures steady demand for its products, and the nearness to its factors of production. The importance of proximity to large markets in the case of Indian IT industry is only marginal as the IT industry, mainly dominated by the computer software segment, is a highly export oriented industry. There are reasons, however to believe that the location of firms in the ICT industry would be based on the supply of its crucial factor of production, namely, skilled labour. The IT industry being a skilled-labour-intensive, export-oriented industry it is by reducing the cost of labour, relative to capital, that it can reap comparative advantage benefits. Moreover, the skill requirement of this industry being very flexible and is subjected to fast rate of obsolescence it remains important for the firm, in order to have uninterrupted production, to locate itself in large pools of skilled labour. Correlations drawn between the location of firms and regional supply of skills tend to support the hypothesis that the quantity and quality of skills supplied in a region could determine the location of firms in a region and clustering of firms to a city.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 28424.

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Date of creation: 10 Mar 2010
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Handle: RePEc:pra:mprapa:28424

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Keywords: Skill Supply; Information Technology Industry; Location; Region; India; Economic Geography; Agglomeration Economies.;

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  1. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
  2. Carlton, Dennis W, 1983. "The Location and Employment Choices of New Firms: An Econometric Model with Discrete and Continuous Endogenous Variables," The Review of Economics and Statistics, MIT Press, vol. 65(3), pages 440-49, August.
  3. J.V. Henderson, 1972. "The Sizes and Types of Cities," Working Papers 75, Queen's University, Department of Economics.
  4. Paul Krugman, 1990. "Increasing Returns and Economic Geography," NBER Working Papers 3275, National Bureau of Economic Research, Inc.
  5. Nakamura, Ryohei, 1985. "Agglomeration economies in urban manufacturing industries: A case of Japanese cities," Journal of Urban Economics, Elsevier, vol. 17(1), pages 108-124, January.
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