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Industry and the urge to cluster: a study of the informal sector in India

  • Megha Mukim

This paper studies the determinants of firm location choice at the district-level in India to gauge the relative importance of agglomeration economies vis-à-vis good business environment. A peculiar characteristic of the Indian economy is that the unorganised nonfarm sector accounts for 43.2% of NDP and employs 71.6% of the total workforce. I analyse National Sample Survey data that covers over 4.4 million firms, in both unorganised sectors – manufacturing and services. The empirical analysis is carried out using count models, and I instrument with land revenue institutions to deal with possible endogeneity bias. I find that buyer-suppler linkages and industrial diversity make a district more attractive to economic activity, whilst the quality and level of infrastructure are also important. I conclude that public policy may be limited in its ability to encourage relocation of informal firms.

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Paper provided by London School of Economics and Political Science, LSE Library in its series LSE Research Online Documents on Economics with number 33592.

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Length: 63 pages
Date of creation: Mar 2011
Date of revision:
Handle: RePEc:ehl:lserod:33592
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