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Diversity matters - the economic geography of industry location in India

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Lall, Somik V.
Jun Koo
Chakravorty, Sanjoy

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Abstract

How does economic geography influence industrial production and thereby affect industrial location decisions and the spatial distribution of development? For manufacturing industry, what are the externalities that matter, and to what extent? Are these externalities spatially localized? The authors answer these questions by analyzing the influence of economic geography on the cost structure of manufacturing firms by firm size for eight industry sectors in India. The economic geography factors include market access and local and urban externalities-which are concentrations of own-industry firms, concentrations of buyer-supplier links, and industrial diversity at the district (local) level. The authors find that industrial diversity is the only economic geography variable that has a significant, consistent, and substantial cost-reducing effect for firms, particularly small firms. This finding calls into question the fundamental assumptions regarding localization economies and raises further concerns on the industrial development prospects of lagging regions in developing countries.

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Paper provided by The World Bank in its series Policy Research Working Paper Series with number 3072.

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Date of creation: 30 Jun 2003
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Handle: RePEc:wbk:wbrwps:3072

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Keywords: Water and Industry; Banks&Banking Reform; Environmental Economics&Policies; Economic Theory&Research; Municipal Financial Management; Water and Industry; Banks&Banking Reform; Economic Theory&Research; Environmental Economics&Policies; Municipal Financial Management;

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  1. Duranton, Gilles, 2008. "From Cities to Productivity and Growth in Developing Countries," CEPR Discussion Papers 6634, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  2. John S Henley, 2004. "Chasing the dragon: accounting for the under-performance of India by comparison with China in attracting foreign direct investment," Journal of International Development, John Wiley & Sons, Ltd., vol. 16(7), pages 1039-1052. [Downloadable!]
  3. Matthee, Marianne & Naude, Wim, 2007. "Export Diversity and Regional Growth: Empirical Evidence from South Africa," Working Papers UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER). [Downloadable!]
  4. Lall, Somik V. & Funderburg, Richard & Yepes, Tito, 2003. "Location, concentration, and performance of economic activity in Brazil," Policy Research Working Paper Series 3268, The World Bank. [Downloadable!]
  5. Lall, Somik V. & Schroeder, Elizabeth & Schmidt, Emily, 2009. "Identifying spatial efficiency-equity tradeoffs in territorial development policies : evidence from Uganda," Policy Research Working Paper Series 4966, The World Bank. [Downloadable!]
  6. Efraim Benmelech & Mark J. Garmaise & Tobias Moskowitz, 2004. "Do Liquidation Values Affect Financial Contracts? Evidence from Commercial Loan Contracts and Zoning Regulation," NBER Working Papers 11004, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  7. John S Henley, 2006. "Chasing the dragon: Accounting for the under-performance of India by comparison with China in attracting foreign direct investment," Working Papers id:756, esocialsciences.com. [Downloadable!]
  8. Sridhar, Kala Seetharam & Wan, Guanghua, 2007. "Firm Location Choice in Cities: Evidence from China, India, and Brazil," Working Papers UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER). [Downloadable!]
  9. Henry Overman & Anthony J. Venables, 2005. "Cities in the Developing World," CEP Discussion Papers dp0695, Centre for Economic Performance, LSE. [Downloadable!]
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