IDEAS home Printed from https://ideas.repec.org/p/wbk/wbrwps/6454.html
   My bibliography  Save this paper

The exceptional persistence of India's unorganized sector

Author

Listed:
  • Ghani, Ejaz
  • Kerr, William R.
  • O'Connell, Stephen D.

Abstract

The transformation of India's unorganized sector is important to its modernization, growth, and attainment of regional economic equality. This paper documents several key facts about India's unorganized sector in manufacturing and services. First, the unorganized sector is large, accounting for more than 99 percent of establishments and 80 percent of employment in manufacturing. Second, the unorganized sector is stubbornly persistent -- it accounted for 81 percent of manufacturing employment in 1989 and 2005. Third, this persistence is not due to particular subsets of industries or states, as most industries and states show limited change in unorganized sector employment shares. Fourth, the degree to which localized unorganized activity exists is important as it is associated with weaker production functions for manufacturing firms. Building from these facts, the paper investigates conditions promoting transformation by state-industry. Decomposition exercises find that both within and between adjustments for state-industries weakly reduce unorganized sector shares. The aggregate persistence instead comes from the covariance term, where fast-growing state-industries witness rising unorganized sector activity. Regressions quantify that growth in the organized sector by state-industry reduces the unorganized sector employment share, but only marginally reduces employment levels in unorganized activity. Analysis of the establishment size distribution highlights that entrepreneurship and larger organized sector plants are most important for transitions in the manufacturing sector, while small establishments play a key role in the services sector.

Suggested Citation

  • Ghani, Ejaz & Kerr, William R. & O'Connell, Stephen D., 2013. "The exceptional persistence of India's unorganized sector," Policy Research Working Paper Series 6454, The World Bank.
  • Handle: RePEc:wbk:wbrwps:6454
    as

    Download full text from publisher

    File URL: http://www-wds.worldbank.org/external/default/WDSContentServer/WDSP/IB/2013/05/21/000158349_20130521090241/Rendered/PDF/WPS6454.pdf
    Download Restriction: no

    References listed on IDEAS

    as
    1. Philippe Aghion & Robin Burgess & Stephen J. Redding & Fabrizio Zilibotti, 2008. "The Unequal Effects of Liberalization: Evidence from Dismantling the License Raj in India," American Economic Review, American Economic Association, vol. 98(4), pages 1397-1412, September.
    2. Ghani, Ejaz & Kharas, Homi, 2010. "The Service Revolution," World Bank - Economic Premise, The World Bank, issue 14, pages 1-5, May.
    3. Kar, Saibal & Marjit, Sugata, 2009. "Urban informal sector and poverty," International Review of Economics & Finance, Elsevier, vol. 18(4), pages 631-642, October.
    4. Kweka, Josaphat & Fox, Louise, 2011. "The household enterprise sector in Tanzania : why it matters and who cares," Policy Research Working Paper Series 5882, The World Bank.
    5. Yves Zenou, 2011. "Rural–Urban Migration And Unemployment: Theory And Policy Implications," Journal of Regional Science, Wiley Blackwell, vol. 51(1), pages 65-82, February.
    6. Edward L. Glaeser & William R. Kerr, 2009. "Local Industrial Conditions and Entrepreneurship: How Much of the Spatial Distribution Can We Explain?," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 18(3), pages 623-663, September.
    7. Nataraj, Shanthi, 2011. "The impact of trade liberalization on productivity: Evidence from India's formal and informal manufacturing sectors," Journal of International Economics, Elsevier, vol. 85(2), pages 292-301.
    8. Timothy Besley & Robin Burgess, 2004. "Can Labor Regulation Hinder Economic Performance? Evidence from India," The Quarterly Journal of Economics, Oxford University Press, vol. 119(1), pages 91-134.
    9. Chang-Tai Hsieh & Peter J. Klenow, 2009. "Misallocation and Manufacturing TFP in China and India," The Quarterly Journal of Economics, Oxford University Press, vol. 124(4), pages 1403-1448.
    10. Delgado, Mercedes & Porter, Michael E. & Stern, Scott, 2014. "Clusters, convergence, and economic performance," Research Policy, Elsevier, vol. 43(10), pages 1785-1799.
    11. J. Vernon Henderson, 2010. "Cities And Development," Journal of Regional Science, Wiley Blackwell, vol. 50(1), pages 515-540.
    12. Ciccone, Antonio & Hall, Robert E, 1996. "Productivity and the Density of Economic Activity," American Economic Review, American Economic Association, vol. 86(1), pages 54-70, March.
    13. Margaret S. McMillan & Dani Rodrik, 2011. "Globalization, Structural Change and Productivity Growth," NBER Working Papers 17143, National Bureau of Economic Research, Inc.
    14. Chen, Martha & Sebstad, Jennefer & O'Connell, Lesley, 1999. "Counting the Invisible Workforce: The Case of Homebased Workers," World Development, Elsevier, vol. 27(3), pages 603-610, March.
    15. Saumya Chakrabarti & Anirban Kundu, 2009. "Formal-Informal Sectors¡¯ Conflict: A Structuralist Framework For India," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 34(2), pages 27-67, December.
    16. Hasan, Rana & L. Jandoc, Karl Robert, 2010. "The Distribution of Firm Size in India: What Can Survey Data Tell Us?," ADB Economics Working Paper Series 213, Asian Development Bank.
    17. John C. Haltiwanger & Ron S. Jarmin & Javier Miranda, 2010. "Who Creates Jobs? Small vs. Large vs. Young," NBER Working Papers 16300, National Bureau of Economic Research, Inc.
    18. Ejaz Ghani & William R. Kerr & Stephen D. O'Connell, 2013. "Local industrial structures and female entrepreneurship in India," Journal of Economic Geography, Oxford University Press, vol. 13(6), pages 929-964, November.
    19. Kanbur, Ravi, 2009. "Conceptualising Informality: Regulation and Enforcement," IZA Discussion Papers 4186, Institute for the Study of Labor (IZA).
    20. Ashok Kotwal & Bharat Ramaswami & Wilima Wadhwa, 2011. "Economic Liberalization and Indian Economic Growth: What's the Evidence?," Journal of Economic Literature, American Economic Association, vol. 49(4), pages 1152-1199, December.
    21. Maloney, William F., 2004. "Informality Revisited," World Development, Elsevier, vol. 32(7), pages 1159-1178, July.
    22. Uwe Deichmann & Somik V. Lall & Stephen J. Redding & Anthony J. Venables, 2008. "Industrial Location in Developing Countries," World Bank Research Observer, World Bank Group, vol. 23(2), pages 219-246, May.
    23. Lall, Somik V. & Shalizi, Zmarak & Deichmann, Uwe, 2004. "Agglomeration economies and productivity in Indian industry," Journal of Development Economics, Elsevier, vol. 73(2), pages 643-673, April.
    24. Dani Rodrik, 2011. "Unconditional Convergence," NBER Working Papers 17546, National Bureau of Economic Research, Inc.
    25. Mukim, Megha, 2011. "Industry and the urge to cluster: a study of the informal sector in India," LSE Research Online Documents on Economics 33592, London School of Economics and Political Science, LSE Library.
    26. Fernandes, Ana M. & Sharma, Gunjan, 2012. "Together we stand ? agglomeration in Indian manufacturing," Policy Research Working Paper Series 6062, The World Bank.
    27. Mark D. Partridge & Dan S. Rickman, 2008. "Distance From Urban Agglomeration Economies And Rural Poverty," Journal of Regional Science, Wiley Blackwell, vol. 48(2), pages 285-310.
    28. Eckhard Siggel, 2010. "The Indian informal sector: The impact of globalization and reform," International Labour Review, International Labour Organization, vol. 149(1), pages 93-105, March.
    29. Amin, Mohammad & Mattoo, Aaditya, 2008. "Human capital and the changing structure of the Indian economy," Policy Research Working Paper Series 4576, The World Bank.
    30. Christian Volpe Martincus, 2010. "Spatial Effects Of Trade Policy: Evidence From Brazil," Journal of Regional Science, Wiley Blackwell, vol. 50(2), pages 541-569.
    31. Somik Lall, 2007. "Infrastructure and regional growth, growth dynamics and policy relevance for India," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 41(3), pages 581-599, September.
    32. Dominik H. Enste & Friedrich Schneider, 2000. "Shadow Economies: Size, Causes, and Consequences," Journal of Economic Literature, American Economic Association, vol. 38(1), pages 77-114, March.
    33. Albert Bollard & Peter Klenow & Gunjam Sharma, 2013. "India's Mysterious Manufacturing Miracle," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 16(1), pages 59-85, January.
    34. Harris, John R & Todaro, Michael P, 1970. "Migration, Unemployment & Development: A Two-Sector Analysis," American Economic Review, American Economic Association, vol. 60(1), pages 126-142, March.
    35. Albert Bollard & Peter Klenow & Gunjam Sharma, 2013. "India's Mysterious Manufacturing Miracle," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 16(1), pages 59-85, January.
    36. Arvind Virmani & Danish A Hashim, 2011. "J-Curve of Productivity and Growth; Indian Manufacturing Post-Liberalization," IMF Working Papers 11/163, International Monetary Fund.
    37. Kathuria, Vinish & Seethamma Natarajan, Rajesh Raj & Sen, Kunal, 2010. "Organized versus Unorganized Manufacturing Performance in India in the Post-Reform Period," MPRA Paper 20317, University Library of Munich, Germany.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Ghani, Ejaz & Kerr, William R. & O'Connell, Stephen D., 2014. "Political reservations and women's entrepreneurship in India," Journal of Development Economics, Elsevier, vol. 108(C), pages 138-153.
    2. Nihar Shembavnekar, 2015. "Tariff Liberalisation, Labour Market Flexibility and Employment: Evidence from India," Working Paper Series 8115, Department of Economics, University of Sussex.
    3. Ghani, Ejaz & Kerr, William R. & Tewari, Ishani, 2014. "Regional diversity and inclusive growth in Indian cities," Policy Research Working Paper Series 6919, The World Bank.
    4. Matthew Embrey & Guillaume R. Frechette & Sevgi Yuksel, 2016. "Cooperation in the Finitely Repeated Prisoner's Dilemma," Working Paper Series 8616, Department of Economics, University of Sussex.
    5. Ghani, Ejaz & Kerr, William R. & O'Connell, Stephen D., 2013. "Female business ownership and informal sector persistence," Policy Research Working Paper Series 6612, The World Bank.
    6. Ghani, Ejaz & Kerr, William R. & Tewari, Ishani, 2013. "Specialization, diversity, and Indian manufacturing growth," Policy Research Working Paper Series 6648, The World Bank.
    7. Ghani, Ejaz & Goswami, Arti Grover & Kerr, William R., 2013. "The golden quadrilateral highway project and urban/rural manufacturing in India," Policy Research Working Paper Series 6620, The World Bank.
    8. repec:bla:rdevec:v:21:y:2017:i:4:p:939-961 is not listed on IDEAS

    More about this item

    Keywords

    Labor Markets; Labor Policies; Water and Industry; Tertiary Education; E-Business;

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wbk:wbrwps:6454. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Roula I. Yazigi). General contact details of provider: http://edirc.repec.org/data/dvewbus.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.