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Moving out of the bottom of the economy? Constraints to firm transition in the Indian informal manufacturing sector

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  • Rajesh SN Raj

    () (Sikkim University)

  • Kunal Sen

    () (University of Manchester
    Global Development Institute)

Abstract

The predominant type of firms in developing countries is small family firms and the self-employed in the informal sector. Very few family firms make the transition to larger firms employing non-family labour. In this paper, we examine the reasons for the low presence of firms employing non-family labour in the informal sector, using a firm-level data set drawn from nationally representative repeated cross-sectional surveys of the Indian informal manufacturing sector. We find that the key constraint to firm transition is firm capabilities, followed by the level of urbanisation, access to electricity and roads, and human capital, with financial constraints playing a lesser role. JEL codes: O17, L25, D22

Suggested Citation

  • Rajesh SN Raj & Kunal Sen, 2016. "Moving out of the bottom of the economy? Constraints to firm transition in the Indian informal manufacturing sector," IZA Journal of Labor & Development, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 5(1), pages 1-20, December.
  • Handle: RePEc:spr:izaldv:v:5:y:2016:i:1:d:10.1186_s40175-016-0056-8
    DOI: 10.1186/s40175-016-0056-8
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    References listed on IDEAS

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    Keywords

    Informal sector; Firm transition; Firm growth; India;

    JEL classification:

    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis

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