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Friend or foe or family ? a tale of formal and informal plants in India

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  • Ghani, Ejaz
  • O'Connell, Stephen D.
  • Sharma, Gunjan

Abstract

This paper examines the interaction between formal (organized) and informal (unorganized) plants in the manufacturing sector in India. How has the size and productivity of the plants in the organized sector affected the plants in the unorganized sector? How have informal plants affected formal plants? Are the magnitudes of the effects symmetric in either direction? The evidence shows that there are positive horizontal and vertical spillovers in each direction. Informal firms are an important supplier of inputs to formal firms. Employment and output in the organized sector is greater in those states in India that have a greater presence of unorganized suppliers of inputs. Conversely, unorganized employment and output are greater in states that have a greater presence of organized buyers of inputs. But there are two important asymmetries in the relationship between the organized and unorganized sectors. First, the unorganized sector is much more dependent on and responsive to organized sector presence than vice versa. Second, unorganized sector productivity is dependent on and responsive to organized sector productivity and presence but the reverse is not true.

Suggested Citation

  • Ghani, Ejaz & O'Connell, Stephen D. & Sharma, Gunjan, 2013. "Friend or foe or family ? a tale of formal and informal plants in India," Policy Research Working Paper Series 6588, The World Bank.
  • Handle: RePEc:wbk:wbrwps:6588
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    References listed on IDEAS

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    1. Grimm, Michael & Gunther, Isabel, 2005. "Inter- and Intra-household Linkages Between the Informal and Formal Sector: A Case Study for Urban Burkina Faso," WIDER Working Paper Series 014, World Institute for Development Economic Research (UNU-WIDER).
    2. Aureo de Paula & Jose A. Scheinkman, 2006. "The Informal Sector," Levine's Bibliography 122247000000001030, UCLA Department of Economics.
    3. 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.
    4. Böhme, Marcus & Thiele, Rainer, 2012. "Is the Informal Sector Constrained from the Demand Side? Evidence for Six West African Capitals," World Development, Elsevier, vol. 40(7), pages 1369-1381.
    5. Ejaz Ghani & William R. Kerr & Stephen O'Connell, 2014. "Spatial Determinants of Entrepreneurship in India," Regional Studies, Taylor & Francis Journals, vol. 48(6), pages 1071-1089, June.
    6. Margaret S. McMillan & Dani Rodrik, 2011. "Globalization, Structural Change and Productivity Growth," NBER Working Papers 17143, National Bureau of Economic Research, Inc.
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    9. 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.
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    12. Moreno-Monroy, Ana Isabel & Pieters, Janneke & Erumban, Abdul Azeez, 2012. "Subcontracting and the Size and Composition of the Informal Sector: Evidence from Indian Manufacturing," IZA Discussion Papers 6785, Institute for the Study of Labor (IZA).
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    Cited by:

    1. Nihar Shembavnekar, 2015. "Tariff Liberalisation, Labour Market Flexibility and Employment: Evidence from India," Working Paper Series 8115, Department of Economics, University of Sussex.
    2. 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.
    3. Ghani,Syed Ejaz & Kerr,William Robert & Segura,Alex, 2015. "Informal tradables and the employment growth of Indian manufacturing," Policy Research Working Paper Series 7206, The World Bank.

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    Keywords

    Labor Policies; Water and Industry; Labor Markets; Industrial Management; E-Business;

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