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In with the Big, Out with the Small Removing Small-Scale Reservations in India

Author

Listed:
  • Leslie A. Martin
  • Shanthi Nataraj
  • Ann E. Harrison

Abstract

For the past 60 years, India has promoted small-scale industries (SSI). Industrial promotion took the form of reserving certain products for manufacture by small and medium firms. The stated goal of Indian policy makers was to promote employment growth and income redistribution. In this paper, the authors use a new version of the Annual Survey of Industries (ASI) that allows them to follow plants over time, and to examine whether small factories in India exhibit faster employment growth than larger factories. They find that, as in the United States, larger, younger factories grow more quickly, and create more jobs than smaller, older factories. They then exploit the fact that India eliminated SSI reservations for more than half of all reserved products between 1997 and 2007 to identify the consequences of removing these policies. They find that districts more exposed to the de-reservation experienced higher employment and wage growth than those that were less exposed. These effects are driven by the growth of factories that moved into the de-reserved product space, whose expansion more than compensated for the shrinking of smaller, incumbent firms.

Suggested Citation

  • Leslie A. Martin & Shanthi Nataraj & Ann E. Harrison, 2014. "In with the Big, Out with the Small Removing Small-Scale Reservations in India," Working Papers WR-1038, RAND Corporation.
  • Handle: RePEc:ran:wpaper:wr-1038
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    References listed on IDEAS

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    Cited by:

    1. Johannes Boehm & null null & John Morrow, 2019. "The Comparative Advantage of Firms," Sciences Po publications 2019-07, Sciences Po.
    2. repec:gam:jecomi:v:7:y:2019:i:2:p:31-:d:220132 is not listed on IDEAS
    3. repec:oup:wbrobs:v:32:y:2017:i:2:p:127-154. is not listed on IDEAS
    4. repec:pal:eurjdr:v:31:y:2019:i:4:d:10.1057_s41287-019-0196-1 is not listed on IDEAS
    5. David McKenzie, 2017. "How Effective Are Active Labor Market Policies in Developing Countries? A Critical Review of Recent Evidence," World Bank Research Observer, World Bank Group, vol. 32(2), pages 127-154.
    6. Aditya Bhattacharjea, 2019. "Labour Market Flexibility in Indian Industry A Critical Survey of the Literature," Working papers 296, Centre for Development Economics, Delhi School of Economics.
    7. Geoffrey Barrows & Helene Ollivier, 2016. "Emission intensity and firm dynamics: reallocation, product mix, and technology in India," GRI Working Papers 245, Grantham Research Institute on Climate Change and the Environment.
    8. Xinshen Diao & Josaphat Kweka & Margaret McMillan, 2016. "Economic Transformation in Africa from the Bottom Up: Evidence from Tanzania," NBER Working Papers 22889, National Bureau of Economic Research, Inc.
    9. repec:eee:deveco:v:138:y:2019:i:c:p:116-134 is not listed on IDEAS
    10. Simone Lenzu & Francesco Manaresi, 2019. "Sources and implications of resource misallocation: new evidence from firm-level marginal products and user costs," Questioni di Economia e Finanza (Occasional Papers) 485, Bank of Italy, Economic Research and International Relations Area.
    11. Boehm, Johannes & Dhingra, Swati & Morrow, John, 2016. "Swimming upstream: input-output linkages and thedirection of product adoption," LSE Research Online Documents on Economics 66418, London School of Economics and Political Science, LSE Library.
    12. Ghani,Syed Ejaz & Grover,Arti & Kerr,Sari & Kerr,William Robert, 2016. "Will market competition trump gender discrimination in India ?," Policy Research Working Paper Series 7814, The World Bank.
    13. Caroline Krafft & Reham Rizk, 2018. "The Promise and Peril of Youth Entrepreneurship in MENA," Working Papers 1257, Economic Research Forum, revised 19 Nov 2018.
    14. Ann Harrison & Benjamin Hyman & Leslie Martin & Shanthi Nataraj, 2015. "When do Firms Go Green? Comparing Price Incentives with Command and Control Regulations in India," NBER Working Papers 21763, National Bureau of Economic Research, Inc.
    15. Hasan, Rana & Jiang, Yi & Rafols , Radine Michelle, 2017. "Place-Based Preferential Preferential Tax Policy and Its Spatial Effects: Evidence from India’s Program on Industrially Backward Districts," ADB Economics Working Paper Series 524, Asian Development Bank.
    16. Sher Singh Verick, 2016. "Manufacturing and jobs: is India different?," The Indian Journal of Labour Economics, Springer;The Indian Society of Labour Economics (ISLE), vol. 59(1), pages 57-84, March.
    17. James Tybout, 2014. "The Missing Middle: Correspondence," Journal of Economic Perspectives, American Economic Association, vol. 28(4), pages 235-236, Fall.

    More about this item

    JEL classification:

    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
    • O25 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Industrial Policy
    • O38 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Government Policy

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