IDEAS home Printed from https://ideas.repec.org/a/eee/wdevel/v51y2013icp91-103.html
   My bibliography  Save this article

The Determinants of Capital Intensity in Manufacturing: The Role of Factor Market Imperfections

Author

Listed:
  • Hasan, Rana
  • Mitra, Devashish
  • Sundaram, Asha

Abstract

We study the role of factor market imperfections in determining industry-level capital intensities. Using cross-country panel data on manufacturing industries, we find that labor market imperfections arising from labor regulation have a greater influence on capital intensity than do credit market imperfections. Less restrictive labor regulations are associated with lower capital intensity in manufacturing, especially in middle-income and developing economies and in sectors that either require more frequent labor adjustment or are more unskilled labor intensive. This suggests that stringent labor regulations can impose costs on labor use, thereby curtailing gains from trade based on factor-abundance driven comparative advantage.

Suggested Citation

  • Hasan, Rana & Mitra, Devashish & Sundaram, Asha, 2013. "The Determinants of Capital Intensity in Manufacturing: The Role of Factor Market Imperfections," World Development, Elsevier, vol. 51(C), pages 91-103.
  • Handle: RePEc:eee:wdevel:v:51:y:2013:i:c:p:91-103
    DOI: 10.1016/j.worlddev.2013.05.012
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0305750X13001332
    Download Restriction: Full text for ScienceDirect subscribers only

    File URL: https://libkey.io/10.1016/j.worlddev.2013.05.012?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Alejandro Cuñat & Marc J. Melitz, 2012. "Volatility, Labor Market Flexibility, And The Pattern Of Comparative Advantage," Journal of the European Economic Association, European Economic Association, vol. 10(2), pages 225-254, April.
    2. Nathan Nunn, 2007. "Relationship-Specificity, Incomplete Contracts, and the Pattern of Trade," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 122(2), pages 569-600.
    3. Gupta,Poonam & Hasan, Rana & Kumar, Utsav, 2009. "Big Reforms but Small Payoffs: Explaining the Weak Record of Growth in Indian Manufacturing," India Policy Forum, National Council of Applied Economic Research, vol. 5(1), pages 59-123.
    4. Juan C. Botero & Simeon Djankov & Rafael La Porta & Florencio Lopez-de-Silanes & Andrei Shleifer, 2004. "The Regulation of Labor," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 119(4), pages 1339-1382.
    5. Andrei A. Levchenko, 2007. "Institutional Quality and International Trade," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 74(3), pages 791-819.
    6. Koujianou Goldberg, Pinelopi & Pavcnik, Nina, 2003. "The response of the informal sector to trade liberalization," Journal of Development Economics, Elsevier, vol. 72(2), pages 463-496, December.
    7. Rana Hasan & Devashish Mitra & K.V. Ramaswamy, 2007. "Trade Reforms, Labor Regulations, and Labor-Demand Elasticities: Empirical Evidence from India," The Review of Economics and Statistics, MIT Press, vol. 89(3), pages 466-481, August.
    8. Timothy Besley & Robin Burgess, 2004. "Can Labor Regulation Hinder Economic Performance? Evidence from India," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 119(1), pages 91-134.
    9. Peter K. Schott, 2003. "One Size Fits All? Heckscher-Ohlin Specialization in Global Production," American Economic Review, American Economic Association, vol. 93(3), pages 686-708, June.
    10. Panagariya, Arvind, 2011. "India: The Emerging Giant," OUP Catalogue, Oxford University Press, number 9780199751563.
    11. Peter K. Schott, 2004. "Across-Product Versus Within-Product Specialization in International Trade," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 119(2), pages 647-678.
    12. Trefler, Daniel, 1993. "International Factor Price Differences: Leontief Was Right!," Journal of Political Economy, University of Chicago Press, vol. 101(6), pages 961-987, December.
    13. Devashish Mitra & Beyza Ural, 2009. "Indian manufacturing: A slow sector in a rapidly growing economy," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 18(1), pages 205-205.
    14. Gupta, Poonam & Hasan, Rana & Kumar, Utsav, 2009. "Big Reforms but Small Payoffs: Explaining the Weak Record of Growth and Employment in Indian Manufacturing," MPRA Paper 13496, University Library of Munich, Germany.
    15. Aditya Bhattacharjea, 2006. "Labour Market Regulation and Industrial Performance in India--A Critical Review of the Empirical Evidence," Working papers 141, Centre for Development Economics, Delhi School of Economics.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Saini, Seema & Ahmad, Wasim, 2024. "Credit creation, credit destruction and credit reallocation: Firm-level evidence from India," Journal of Asian Economics, Elsevier, vol. 92(C).
    2. Cumming, Douglas J. & Nguyen, Giang & Nguyen, My, 2022. "Product market competition, venture capital, and the success of entrepreneurial firms," Journal of Banking & Finance, Elsevier, vol. 144(C).
    3. Popova, Svetlana & Karlova, Nataliya & Ponomarenko, Alexey & Deryugina, Elena, 2017. "Analysis of the debt burden in Russian economy sectors," Russian Journal of Economics, Elsevier, vol. 3(4), pages 379-410.
    4. David Kunst, 2019. "Deskilling among Manufacturing Production Workers," Tinbergen Institute Discussion Papers 19-050/VI, Tinbergen Institute, revised 30 Dec 2020.
    5. Cui, Guanghui & Zhang, Yi & Ma, Jingwen & Yao, Wenyun, 2023. "Does environmental regulation affect the labor income share of manufacturing enterprises? Evidence from China," Economic Modelling, Elsevier, vol. 123(C).
    6. Wang, Linhui & Chen, Qi & Dong, Zhiqing & Cheng, Lu, 2024. "The role of industrial intelligence in peaking carbon emissions in China," Technological Forecasting and Social Change, Elsevier, vol. 199(C).
    7. Jian Ding & Yixiao Zhou, 2021. "Did the Labor Contract Law Affect the Capital Deepening and Efficiency of Chinese Private Firms?," China & World Economy, Institute of World Economics and Politics, Chinese Academy of Social Sciences, vol. 29(5), pages 105-126, September.
    8. Yao, Wenyun & Zhang, Yi & Ma, Jingwen & Cui, Guanghui, 2023. "Does environmental regulation affect capital-labor ratio of manufacturing enterprises: Evidence from China," International Review of Financial Analysis, Elsevier, vol. 86(C).
    9. Borooah, Vani, 2019. "The Labour Market in India," MPRA Paper 101673, University Library of Munich, Germany.
    10. Judzik, Dario & Sala, Hector, 2015. "The determinants of capital intensity in Japan and the US," Journal of the Japanese and International Economies, Elsevier, vol. 35(C), pages 78-98.
    11. Shaosheng Jin & Baojie Ma & Yuqing Zheng & Xin Jin & Wenchao Wu, 2024. "Short‐term impact of food safety standards on agri‐product exports: Evidence from Japan's positive list system on Chinese vegetable exports," Journal of Agricultural Economics, Wiley Blackwell, vol. 75(1), pages 362-381, February.
    12. Khanna, Rupika & Sharma, Chandan, 2021. "Does infrastructure stimulate total factor productivity? A dynamic heterogeneous panel analysis for Indian manufacturing industries," The Quarterly Review of Economics and Finance, Elsevier, vol. 79(C), pages 59-73.
    13. Tooba Shojaie & Amir Mansour Tehranchian, 2018. "New Empirical Evidence on the Determinants of Capital Intensity: An Adaptive Comparison of Iran and China," International Journal of Economics and Financial Issues, Econjournals, vol. 8(2), pages 94-100.
    14. Soumya Bhadury & Abhinav Narayanan & Bhanu Pratap, 2021. "Structural Transformation of Jobs from Manufacturing to Services: Will It Work for India?," Margin: The Journal of Applied Economic Research, National Council of Applied Economic Research, vol. 15(1), pages 22-49, February.
    15. Diti Goswami & Sourabh Bikas Paul, 2020. "Labor Reforms in Rajasthan: A boon or a bane?," Papers 2012.01016, arXiv.org.
    16. Bir Singh, 2022. "Contractualisation in India’s manufacturing industry and the economic reforms of the early 1990s: an analysis based on ASI data," International Journal of Economic Policy Studies, Springer, vol. 16(1), pages 135-157, February.
    17. Asian Bank, 2018. "Asian Development Outlook (ADO) 2018: How Technology Affects Jobs," Working Papers id:12717, eSocialSciences.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Asha Sundaram & Reshad Ahsan & Devashish Mitra, 2012. "Complementarity between Formal and Informal Manufacturing in India: The Role of Policies and Institutions," Working Papers 1116, School of International and Public Affairs, Columbia University, revised Apr 2012.
    2. Nihar Shembavnekar, 2018. "Did India’s economic reforms generate jobs? Essays on economic liberalisation, labour market flexibility and employment in the Indian manufacturing sector (1990-2006)," Economics PhD Theses 0917, Department of Economics, University of Sussex Business School.
    3. Matthew Embrey & Guillaume R. Frechette & Sevgi Yuksel, 2016. "Cooperation in the Finitely Repeated Prisoner's Dilemma," Working Paper Series 8616, Department of Economics, University of Sussex.
    4. Chaurey, Ritam, 2015. "Labor regulations and contract labor use: Evidence from Indian firms," Journal of Development Economics, Elsevier, vol. 114(C), pages 224-232.
    5. Nihar Shembavnekar, 2015. "Tariff Liberalisation, Labour Market Flexibility and Employment: Evidence from India," Working Paper Series 8115, Department of Economics, University of Sussex Business School.
    6. Veeramani, Choorikkad & Banerjee, Purna, 2022. "Exchange rate fluctuations, labour laws, and gender differences in job flows: Analysis of manufacturing industries across Indian states," World Development, Elsevier, vol. 152(C).
    7. Nihar Shembavnekar, 2019. "Economic Reform, Labour Markets and Informal Sector Employment: Evidence from India," Economies, MDPI, vol. 7(2), pages 1-42, June.
    8. Djankov, Simeon & Ramalho, Rita, 2009. "Employment laws in developing countries," Journal of Comparative Economics, Elsevier, vol. 37(1), pages 3-13, March.
    9. Nihar Shembavnekar, 2019. "Economic Reforms, Labour Markets and Formal Sector Employment: Evidence from India," Economies, MDPI, vol. 7(2), pages 1-42, April.
    10. Sofi Irfan Ahmad & Sharma Pritee, 2015. "Labour Laws and Informalisation of Employment: Panel Evidences from Indian Formal Manufacturing Sector," Asian Journal of Law and Economics, De Gruyter, vol. 6(1), pages 65-84, April.
    11. J.Salcedo Cain & Rana Hasan & Devashish Mitra, 2010. "Trade Liberalization and Poverty Reduction: New Evidence from Indian States," Working Papers 3333, School of International and Public Affairs, Columbia University, revised Nov 2010.
    12. Hasan, Rana & Mitra, Devashish & Ranjan, Priya & Ahsan, Reshad N., 2012. "Trade liberalization and unemployment: Theory and evidence from India," Journal of Development Economics, Elsevier, vol. 97(2), pages 269-280.
    13. Asha Sundaram, 2015. "The Impact of Trade Liberalization on Micro Enterprises: Do Banks Matter? Evidence from Indian Manufacturing," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 77(6), pages 832-853, December.
    14. Ashok Kotwal & Bharat Ramaswami & Wilima Wadhwa, 2011. "Economic Liberalization and Indian Economic Growth: What's the Evidence?," Journal of Economic Literature, American Economic Association, vol. 49(4), pages 1152-1199, December.
    15. Hasan, Rana & Mehta, Aashish & Sundaram, Asha, 2021. "The effects of labor regulation on firms and exports: Evidence from Indian apparel manufacturing," Journal of Comparative Economics, Elsevier, vol. 49(1), pages 183-200.
    16. Irfan Ahmad Sofi & Pritee Sharma, 2015. "Labour Regulations, Contractualization and Industrial Performance," South Asia Economic Journal, Institute of Policy Studies of Sri Lanka, vol. 16(1), pages 122-144, March.
    17. Sean Dougherty & Verónica C. Frisancho Robles & Kala Krishna, 2011. "Employment Protection Legislation and Plant-Level Productivity in India," NBER Working Papers 17693, National Bureau of Economic Research, Inc.
    18. Chor, Davin, 2010. "Unpacking sources of comparative advantage: A quantitative approach," Journal of International Economics, Elsevier, vol. 82(2), pages 152-167, November.
    19. Bhattacharya, Sourav & Chakraborty, Pavel & Chatterjee, Chirantan, 2022. "Intellectual property regimes and wage inequality," Journal of Development Economics, Elsevier, vol. 154(C).
    20. Bhaskar Jyoti Neog & Bimal Kishore Sahoo, 2020. "Job Reallocation Dynamics in India: Evidence from Large Manufacturing Plants," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 82(4), pages 934-959, August.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:wdevel:v:51:y:2013:i:c:p:91-103. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/worlddev .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.