Business environment, clustering, and industry location : evidence from Indian cities
AbstractHow do differences in the local business environment influence location of industry within countries? How do the benefits of a good business environment compare with those from good market access and agglomeration economies from industry clustering? The authors examine these questions by analyzing location decisions of individual firms. Using data from a recently completed survey of manufacturing firms in India, they find that both the local business environment and agglomeration economies significantly influence business location choices across cities. In particular, excessive regulation of labor and of other industrial activities reduces the probability of a business locating in a city. The authors'findings imply that in order to attract industrial activity, smaller or remoter cities need to offer even more attractive policy concessions or reforms to offset the effects of their relatively adverse (economic) geography. Their methodology pays special attention to the identification of agglomeration economies in the presence of unobserved sources of natural advantage.
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Bibliographic InfoPaper provided by The World Bank in its series Policy Research Working Paper Series with number 3675.
Date of creation: 01 Aug 2005
Date of revision:
This paper has been announced in the following NEP Reports:
- NEP-ALL-2005-12-15 (All new papers)
- NEP-CWA-2005-12-14 (Central & Western Asia)
- NEP-DEV-2005-12-18 (Development)
- NEP-GEO-2006-02-08 (Economic Geography)
- NEP-URE-2006-01-27 (Urban & Real Estate Economics)
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