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Complementarity between Formal and Informal Manufacturing in India: The Role of Policies and Institutions

  • Asha Sundaram
  • Reshad Ahsan
  • Devashish Mitra

In this paper, we have investigated the relationship between the formal and informal manufacturing sectors in India. We find that the employment, output and the value added of the informal part of each of the manufacturing industries in the various Indian states are strongly positively correlated with the same variables for the formal part of the respective industry in these states. Our results provide support for complementarities between formal and informal manufacturing arising possibly from both agglomeration and outsourcing. We also find fairly strong support for the role of labor market flexibility in enabling this complementarity. Trade liberalization also turns out to have an important role.

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Paper provided by School of International and Public Affairs, Columbia University in its series Working Papers with number 1116.

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Length: 47 pages
Date of creation: Apr 2012
Date of revision: Apr 2012
Handle: RePEc:ecq:wpaper:1116
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  1. Asha Sundaram, 2011. "The Impact of Trade Liberalization on Micro Enterprises: Do Banks Matter? Evidence from Indian Manufacturing," Working Papers 225, Economic Research Southern Africa.
  2. Panagariya, Arvind, 2008. "India: The Emerging Giant," OUP Catalogue, Oxford University Press, number 9780195315035.
  3. Eric V. Edmonds & Nina Pavcnik & Petia Topalova, 2007. "Trade Adjustment and Human Capital Investments: Evidence from Indian Tariff Reform," NBER Working Papers 12884, National Bureau of Economic Research, Inc.
  4. Poonam Gupta & Rana Hasan & Utsav Kumar, 2008. "Big Reforms but Small Payoffs: Explaining the Weak Record of Growth in Indian Manufacturing," India Policy Forum, Global Economy and Development Program, The Brookings Institution, vol. 5(1), pages 59-123.
  5. 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.
  6. Rana Hasan & Devashish Mitra & Beyza P. Ural, 2006. "Trade Liberalization, Labor-Market Institutions, and Poverty Reduction: Evidence from Indian States," India Policy Forum, Global Economy and Development Program, The Brookings Institution, vol. 3(1), pages 71-122.
  7. 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.
  8. Edward C. Norton & Hua Wang & Chunrong Ai, 2004. "Computing interaction effects and standard errors in logit and probit models," Stata Journal, StataCorp LP, vol. 4(2), pages 154-167, June.
  9. Petia Topalova, 2005. "Trade Liberalization, Poverty And Inequality: Evidence From Indian Districts," Working Papers id:222, eSocialSciences.
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