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The impact of business environment and economic geography on plant-level productivity : an analysis of Indian industry

  • Lall, Somik V.
  • Mengistae, Taye

The authors'analysis of manufacturing plants sampled from India's major industrial centers shows large productivity gaps across cities. The gaps partly reflect differences in agglomeration economies and in market access. However, they are also explained to a greater extent by differences in the degree of labor regulation and in the severity of power shortages. This is an indication that governments can help narrow regional disparities in industrial growth by fostering the"right business environment"in locations where industry might otherwise be held back by powerful forces of economic geography. There is indeed a pattern in the data whereby geographically disadvantaged cities seem to compensate partially for their natural disadvantage by having a better business environment than more geographically advantaged locations.

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Paper provided by The World Bank in its series Policy Research Working Paper Series with number 3664.

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Date of creation: 01 Jul 2005
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Handle: RePEc:wbk:wbrwps:3664
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