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Exports, Capabilities, and Industrial Policy in India

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  • Jesus Felipe
  • Utsav Kumar
  • Arnelyn Abdon

Abstract

An extensive literature argues that India's manufacturing sector has underperformed, and that the country has failed to industrialize; in particular, it has failed to take advantage of its labor-abundant comparative advantage. India's manufacturing sector is smaller as a share of GDP than that of East Asian countries, even after controlling for GDP per capita. Hence, its contribution to overall GDP growth is modest. Without greater participation of the secondary sector, the argument goes, the country will not be able to develop and become a modern economy. Standard arguments blame the "license-permit raj," the small-scale industrial policy, and the supposedly stringent laws. All these were part of the industrial policy regime instituted after independence, which favored the heavy-machinery subsector. We show that this policy bias negatively affected the development of India’s labor-intensive sector, as the country should export with comparative advantage a larger number of these products, given its income per capita. However, India's manufacturing sector is relatively well diversified and sophisticated, given also the country’s income per capita. In particular, India’s inroads into machinery, metals, chemicals, and other capital- and skilled labor–intensive products has allowed the country to accumulate a large number of capabilities. This positions India well to expand its exports of other sophisticated products.

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  • Jesus Felipe & Utsav Kumar & Arnelyn Abdon, 2010. "Exports, Capabilities, and Industrial Policy in India," Economics Working Paper Archive wp_638, Levy Economics Institute.
  • Handle: RePEc:lev:wrkpap:wp_638
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    References listed on IDEAS

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    Cited by:

    1. Yuping Deng & Yanrui Wu & Helian Xu, 2020. "Political Connections and Firm Pollution Behaviour: An Empirical Study," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 75(4), pages 867-898, April.
    2. Arnelyn Abdon & Jesus Felipe, 2011. "The Product Space: What Does It Say About the Opportunities for Growth and Structural Transformation of Sub-Saharan Africa?," Economics Working Paper Archive wp_670, Levy Economics Institute.
    3. Sadhana Srivastava & Rahul Sen, 2015. "Production fragmentation in trade of manufactured goods in India: prospects and challenges," Asia-Pacific Development Journal, United Nations Economic and Social Commission for Asia and the Pacific (ESCAP), vol. 22(1), pages 33-66, June.
    4. Jesus Felipe & Utsav Kumar & Arnelyn Abdon, 2010. "Using Capabilities to Project Growth, 2010-30," Economics Working Paper Archive wp_609, Levy Economics Institute.
    5. Michael Landesmann & Roman Stöllinger, 2018. "Structural Change, Trade and Global Production Networks," wiiw Policy Notes 21, The Vienna Institute for International Economic Studies, wiiw.
    6. Rawat, Pankaj S. & Sharma, Seema, 2021. "TFP growth, technical efficiency and catch-up dynamics: Evidence from Indian manufacturing," Economic Modelling, Elsevier, vol. 103(C).
    7. Nicola D Coniglio & Raffaele Lagravinese & Davide Vurchio & Massimo Armenise, 2018. "The pattern of structural change: testing the product space framework," Industrial and Corporate Change, Oxford University Press, vol. 27(4), pages 763-785.
    8. Cao, Hongjian & Wang, Bizhe & Li, Ke, 2021. "Regulatory policy and misallocation: A new perspective based on the productivity effect of cleaner production standards in China's energy firms," Energy Policy, Elsevier, vol. 152(C).
    9. Beretta, Silvio & Targetti Lenti, Renata, 2011. "“India in the Outsourcing/Offshoring Process: A Western Perspective” - L’India nel processo di outsourcing/offshoring: un punto di vista occidentale," Economia Internazionale / International Economics, Camera di Commercio Industria Artigianato Agricoltura di Genova, vol. 64(3), pages 269-296.
    10. Sonal Ann D’souza & Panchendra K. Naik, 2018. "Trade Liberalisation, Capital-Intensive Export and Informalisation: A Case Study of India’s Manufacturing Sector," The Indian Journal of Labour Economics, Springer;The Indian Society of Labour Economics (ISLE), vol. 61(2), pages 377-399, June.
    11. Landesmann, Michael A. & Stöllinger, Roman, 2019. "Structural change, trade and global production networks: An ‘appropriate industrial policy’ for peripheral and catching-up economies," Structural Change and Economic Dynamics, Elsevier, vol. 48(C), pages 7-23.
    12. Prema‐chandra Athukorala, 2019. "Joining Global Production Networks: Experience and Prospects of India," Asian Economic Policy Review, Japan Center for Economic Research, vol. 14(1), pages 123-143, January.
    13. Ha-Joon Chang & Kiryl Zach, 2018. "Industrial development in Asia: Trends in industrialization and industrial policy experiences of developing Asia," WIDER Working Paper Series wp-2018-120, World Institute for Development Economic Research (UNU-WIDER).

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    More about this item

    Keywords

    Capabilities; Diversification; India; Industrial Policy; Revealed Comparative Advantage; Sophistication;
    All these keywords.

    JEL classification:

    • O20 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - General
    • O25 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Industrial Policy
    • O53 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Asia including Middle East

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