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Industrial Location in Developing Countries

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  • Uwe Deichmann
  • Somik V. Lall
  • Stephen J. Redding
  • Anthony J. Venables

Abstract

Despite a diminishing role in industrial countries, the manufacturing sector continues to be an engine of economic growth in most developing countries. This article surveys the evidence on the determinants of industry location in developing countries. It also employs micro data for India and Indonesia to illustrate recent spatial dynamics of manufacturing relocation within urban agglomerations. Both theory and empirical evidence suggest that agglomeration benefits, market access, and infrastructure endowments in large cities outweigh the costs of congestion, higher wages, and land prices. Despite this evidence, many countries have tried to encourage industrial firms to locate in secondary cities or other lagging areas. Cross-country evidence suggests that fiscal incentives to do so rarely succeed. They appear to influence business location decisions among comparable locations, but the result may be a negative-sum game between regions and inefficiently low tax rates, which prevent public goods from being funded at sufficiently high levels. Relocation tends to be within and between agglomerations rather than from large cities to smaller cities or lagging regions. Rather than provide subsidies and tax breaks, policymakers should focus on streamlining laws and regulations to make the business environment more attractive. Copyright The Author 2008. Published by Oxford University Press on behalf of the International Bank for Reconstruction and Development / the world bank . All rights reserved. For permissions, please e-mail: journals.permissions@oxfordjournals.org, Oxford University Press.

Suggested Citation

  • Uwe Deichmann & Somik V. Lall & Stephen J. Redding & Anthony J. Venables, 2008. "Industrial Location in Developing Countries," World Bank Research Observer, World Bank Group, vol. 23(2), pages 219-246, May.
  • Handle: RePEc:oup:wbrobs:v:23:y:2008:i:2:p:219-246
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    Cited by:

    1. Emma Howard, 2017. "Social networks, geographic proximity, and firm performance in Viet Nam," WIDER Working Paper Series 069, World Institute for Development Economic Research (UNU-WIDER).
    2. Carla Daniela Calá & Miguel Manjón-Antolín & Josep-Maria Arauzo-Carod, 2016. "Regional determinants of firm entry in a developing country," Papers in Regional Science, Wiley Blackwell, vol. 95(2), pages 259-279, June.
    3. Somik V. Lall & Elizabeth Schroeder & Emily Schmidt, 2014. "Identifying Spatial Efficiency-Equity Trade-offs in Territorial Development Policies: Evidence from Uganda," Journal of Development Studies, Taylor & Francis Journals, vol. 50(12), pages 1717-1733, December.
    4. Maarten Bosker & Harry Garretsen, 2012. "Economic Geography and Economic Development in Sub-Saharan Africa," World Bank Economic Review, World Bank Group, vol. 26(3), pages 443-485.
    5. Ghani, Ejaz & Kerr, William R. & O'Connell, Stephen D., 2012. "What explains big gender disparities in India ? local industrial structures and female entrepreneurship," Policy Research Working Paper Series 6228, The World Bank.
    6. Cazzuffi, Chiara & Pereira-López, Mariana & Soloaga, Isidro, 2017. "Local poverty reduction in Chile and Mexico: The role of food manufacturing growth," Food Policy, Elsevier, vol. 68(C), pages 160-185.
    7. David Bailey & Helena Lenihan & Ajit Singh, 2009. "Lessons for African Economies from Irish and East Asian Industrial Policy," Journal of Industry, Competition and Trade, Springer, vol. 9(4), pages 357-382, December.
    8. Nalin Kumar Ramaul & Pinki Ramaul, 2016. "Determinants of Industrial Location Choice in India: A Polychoric Principal Component Analysis Approach," Journal of Quantitative Economics, Springer;The Indian Econometric Society (TIES), vol. 14(1), pages 29-56, June.
    9. Ejaz Ghani & William R. Kerr & Stephen O'Connell, 2014. "Spatial Determinants of Entrepreneurship in India," Regional Studies, Taylor & Francis Journals, vol. 48(6), pages 1071-1089, June.
    10. Ghani, Ejaz & Kerr, William R. & O'Connell, Stephen D., 2013. "The exceptional persistence of India's unorganized sector," Policy Research Working Paper Series 6454, The World Bank.
    11. Ejaz Ghani & William R. Kerr & Stephen D. O'Connell, 2013. "Local industrial structures and female entrepreneurship in India," Journal of Economic Geography, Oxford University Press, vol. 13(6), pages 929-964, November.
    12. Ghani, Ejaz & Kerr, William R. & O'Connell, Stephen D., 2012. "What makes cities more competitive ? spatial determinants of entrepreneurship in India," Policy Research Working Paper Series 6198, The World Bank.
    13. Saikia, Dilip, 2009. "Industrial Location in India under Liberalization," MPRA Paper 27821, University Library of Munich, Germany.
    14. Jedwab, Remi & Vollrath, Dietrich, 2015. "Urbanization without growth in historical perspective," Explorations in Economic History, Elsevier, vol. 58(C), pages 1-21.
    15. Carlianne Patrick, 2016. "Identifying The Local Economic Development Effects Of Million Dollar Facilities," Economic Inquiry, Western Economic Association International, vol. 54(4), pages 1737-1762, October.
    16. Fujita, Yasuo & Takeda, Asami, 2014. "Effects of Transport Corridor Development on Firms’ Locational Choice and Firms’ Perception of Business Environment: A Preliminary Analysis of Transport Corridors in Mozambique," Working Papers 74, JICA Research Institute.
    17. Brulhart, Marius & Hoppe, Mombert, 2011. "Economic integration in the lower Congo region : opening the Kinshasa-Brazzaville bottleneck," Policy Research Working Paper Series 5909, The World Bank.
    18. Deichmann, Uwe & Shilpi, Forhad & Vakis, Renos, 2009. "Urban Proximity, Agricultural Potential and Rural Non-farm Employment: Evidence from Bangladesh," World Development, Elsevier, vol. 37(3), pages 645-660, March.
    19. Emma Howard & Carol Newman & Finn Tarp, 2016. "Measuring industry coagglomeration and identifying the driving forces," Journal of Economic Geography, Oxford University Press, vol. 16(5), pages 1055-1078.
    20. Ailenei Dorel & Mosora Cosmin, 2011. "Local Action Groups - a possible solution to the rural problem of Romania," ERSA conference papers ersa11p1136, European Regional Science Association.
    21. Tilman Altenburg & Wilfried Lütkenhorst, 2015. "Industrial Policy in Developing Countries," Books, Edward Elgar Publishing, number 14726.
    22. World Bank, 2012. "Integrating Leading and Lagging Areas," World Bank Other Operational Studies 27440, The World Bank.
    23. Ailenei Dorel & Mosora Liviu - Cosmin, 2011. "Local Action Groups - The European Integration Catalyst For The Romanian Rural Area," Annals of Faculty of Economics, University of Oradea, Faculty of Economics, vol. 1(1), pages 40-46, July.
    24. Ana M. Fernandes & Gunjan Sharma, 2014. "Determinants of Clusters in Indian Manufacturing: The Role of Infrastructure, Governance, Education, and Industrial Policy," Working Papers id:5693, eSocialSciences.
    25. Ghani, Ejaz & Kerr, William R. & O'Connell, Stephen D., 2013. "Input usage and productivity in Indian manufacturing plants," Policy Research Working Paper Series 6656, The World Bank.

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