Manufacturing and Trade Liberalisation of India: Continuing the Debate

Ghosh Dastidar, Sayantan (2015): Manufacturing and Trade Liberalisation of India: Continuing the Debate.

Abstract

The paper attempts to identify the reasons behind the differential performance of the registered and unregistered manufacturing sectors of India during the post-reform period. The motivation for this study comes from the econometric results of Ghosh Dastidar and Veeramani (2014) who find that trade liberalisation has positively affected the unregistered sector growth performance but not that of the registered segment. Besides discussing the probable reasons behind the absence of a trade-growth nexus in the case of the registered sector, the paper reviews the theoretical literature on the unregistered sector - trade liberalisation association with an aim to identify the channels through which trade liberalisation might have affected the performance of the unregistered segment. It seems that trade liberalisation benefitted the unregistered sector indirectly through the increase in sub-contracting activities from the registered sector. Absence of rigid labour regulations also helped the unregistered sector undergo restructuring during the post-reform period and achieve faster growth through elimination of inefficient firms, something which the registered segment failed to do.

• Item Type: MPRA Paper
• Language: English
• Keywords: Registered Manufacturing, Unregistered Manufacturing, Trade Liberalisation, Growth, Employment, India
• Subjects: F - International Economics > F1 - Trade > F10 - General; L - Industrial Organization > L6 - Industry Studies: Manufacturing > L60 - General; O - Economic Development, Innovation, Technological Change, and Growth > O1 - Economic Development > O14 - Industrialization ; Manufacturing and Service Industries ; Choice of Technology; O - Economic Development, Innovation, Technological Change, and Growth > O2 - Development Planning and Policy > O25 - Industrial Policy

References

AGHION, P., BURGESS, R., REDDING, S. J., and ZILIBOTTI, F. 2008. The Unequal Effects of Liberalization: Evidence from Dismantling the License Raj in India. American Economic Review, 98(4), 1397–1412.

ALESSANDRINI, M. 2009. JOBLESS GROWTH IN INDIAN MANUFACTURING: A KALDORIAN APPROACH. Centre for Financial & Management Studies Discussion Paper, No. 99, University of London.

BANERJEE, B. 1983. The Role of the Informal Sector in the Migration Process: A Test of Probabilistic Migration Models and Labour Market Segmentation for India. Oxford Economic Papers, 35(3), 399-422.

BANGA, R., and DAS, A. 2010.Role of trade policies in growth of Indian manufacturing sector.MPRA Working Paper, No. 35198, University Library of Munich, Germany.

BANGA, R. 2014. ‘Hollowing-Out’ of India’s Manufacturing Sector: Role of International Trade. Accessed at http://www.esocialsciences.org/eSS_essay/Manufacturing/Hollowing%20Out.pdf.

BHAUMIK, S.K. 2008.Reforming Indian Agriculture: Towards Employment Generation and Poverty Reduction. SAGE Pulbications India Pvt Ltd, New Delhi.

CHANDRASEKHAR, C.P., AND GHOSH, J. 2006.Tracking the Macroeconomy: Selections from Macroscan, 2001-05, Volume 1.The ICFAI University Press, Hyderabad, India.

DAS, D. K. 2003. Quantifying Trade Barriers: Has Trade Protection Declined Substantially in Indian Manufacturing. Indian Council for Research on International Economic Relations Working Paper, No. 105.

FIELDS, G. S. 1975. Rural-urban migration, urban unemployment and underemployment, and job-search activity in LDCs. Journal of Development Economics, 2(2), 165–187.

GHOSH, A., and PAUL, S. 2008. Opening the Pandora’s Box? Trade Openness and Informal Sector Growth.Applied Economics, 40(15), 1995-2007.

GHOSH DASTIDAR, S., and VEERAMANI, C. 2014. Does trade openness affect manufacturing growth at the Indian state level? MPRA Working Paper, No. 58876, University Library of Munich, Germany.

GOLDAR, B., and KUMARI, A. 2003. Import Liberalization and Productivity Growth in Indian Manufacturing Industries in the 1990s. The Developing Economies, 41(4), 436-60.

GOLDAR, B., and AGGARWAL, S. C. 2012.Informalization of industrial labor in India: Effects of labor market rigidities and import competition, The Developing Economies, 50(2), 141-169.

GOLDBERG, P. K., and PAVCNIK, N. 2003.The response of the informal sector to trade liberalization. NBER Working Paper, No. 9443.

GUPTA, P., and KUMAR, U. 2010. Performance of Indian Manufacturing in the Post Reform Period.MPRA Working Paper, No. 24898, University Library of Munich, Germany.

HASHIM, D. A., KUMAR, A., and VIRMANI, A. 2009. Impact of Major Liberalization on Productivity: The J-Curve Hypothesis. Working Paper, No. 5/2009, DEA, Ministry of Finance, Government of India.

INTERNATIONAL LABOUR ORGANIZATION, 2012.Women and men in the informal economy - Statistical picture. Accessed at http://laborsta.ilo.org/informal_economy_E.html.

KAPOOR, R. 2014. Creating Jobs in India’s Registered Manufacturing Sector. ICRIER Working Paper, No. 286.

KATHURIA, V.,SEETHAMMA NATARAJAN, R.R., and SEN, K. 2013. The effects of economic reforms on manufacturing dualism: Evidence from India. Journal of Comparative Economics, 41(4), 1240-1262.

KATHURIA, V.,SEETHAMMA NATARAJAN, R.R., and SEN,K.2010. Organized versus Unorganized Manufacturing Performance in India in the Post-Reform Period. MPRA Working Paper, No. 20317, University Library of Munich, Germany.

KUMARI, A. 2005. Liberalization and Sources of Industrial Growth in India: An Analysis Based on Input-Output Approach. Conference Paper, 15th International Conference on Input-Output Techniques, June 27-July 1.

MARJIT, S. 2003. Economic Reform and Informal Wage: General Equilibrium Analysis. Journal of Development Economics, 72 (1), 371-378.

MARJIT, S., and MAITI, D.S. 2005.Globalization, Reform and the Informal Sector, World Institute for Development Economic Research Working Paper, No. RP2005/12.

MAZUMDAR, D. 1976. The urban informal sector. World Development, 4(8), 655-679.

MAZUMDAR, D. 2010a. India’s Peculiar Pattern of Growth: The Impact of Labor Regulations on its Origin and Persistence. Conference Paper, Paper prepared for the International Conference on “Enforcement, Evasion with Informality: Theory and Practice” Ann Arbor, Michigan, June 4-6 2010.

MAZUMDAR, D. 2010b.Employment and Inequality Outcomes in India.Conference Paper, Conference on Inequality in Emerging Economies, Directorate of Employment. Labor and Social Affairs, OECD, Paris.

MITRA, D., and URAL, B. 2008. Indian manufacturing: A slow sector in a rapidly growing economy. The Journal of International Trade and Economic Development, 17(4), 525-559.

MORENO-MONROY, A. I., PIETERS, J., and ERUMBAN, A. A. 2012. Subcontracting and the Size and Composition of the Informal Sector: Evidence from Indian Manufacturing. IZA Discussion Paper, No. 6785.

NATARAJ, S. 2011. The impact of trade liberalization on productivity: Evidence from India's formal and informal manufacturing sectors. Journal of International Economics, 85(2), 292-301.

PANAGARIYA, A. 2004. India in the 1980s and 1990s: A Triumph of Reforms. IMF Working Paper, No. WP/04/43.

PANAGARIYA, A. 2006.Transforming India.Conference Paper, presented at the Conference on India: An Emerging Giant, October 2006, Columbia University.

RAMASWAMY, K. V. 1999. The Search for Flexibility in Indian Manufacturing: New Evidence on Outsourcing Activities. Economic and Political Weekly, 34(6), 363–68.

RODRIK, D., and SUBRAMANIAN, A. 2004.From “Hindu Growth” to Productivity Surge: The Mystery of the Indian Growth Transition.IMF Working Paper, No. WP/04/77.

SACHS, J.D., VARSHNEY, A., and BAJPAI, N. 2000.India in the Era of Economic Reforms. Oxford University Press, New Delhi.

SARKER, D., and DAS, D. 2011. Performance of manufacturing industry in Indian states: who loose and why? MPRA Working Paper, No. 33645, University Library of Munich, Germany.

SEN, K., SAHA, B., and MAITI,D. 2010. Trade Openness, Labour Institutions and Flexibility: Theory and Evidence from India. BWPI Working Paper, No. 123, Brooks World Poverty Institute, University of Manchester.

SEN, K., and DAS, D. 2014. Where Have All the Workers Gone? The Puzzle of Declining Labour Intensity in Organized Indian Manufacturing, DEPP Working Paper, No. 36.

SIGGEL, E. 2010. The Indian informal sector: The impact of globalization and reform. International Labour Review, 149(1), 93-105.

SINHA, A., and TEJANI, S. 2004. Trend break in India’s GDP growth rate: Some comments. Economic and Political Weekly, 39 (52), 5634-39.

THOMAS, J. J. 2002. A Review of Indian Manufacturing.India Development Report 2002. Oxford University Press, New Delhi.

TRIVEDI, P., LAKSHMANAN, L., JAIN, R., and GUPTA, Y.K. 2011.Productivity, Efficiency and Competitiveness of the Indian Manufacturing Sector. Development Research Group Study Series, No. 37, Reserve Bank of India.

UNNI, J. 2003. Economic Reforms and Labour Markets in India: Organized and Unorganized Sectors, in Shuji Uchikawa (edited), Labour Market and Institution in India: 1990s and Beyond, Manohar Publications, New Delhi, India.

VIRMANI, A. 2005. Policy Regimes, Growth and Poverty in India: Lessons of Government Failure and Entrepreneurial Success! ICRIER Working Paper, No. 170.

VIRMANI, A., and HASHIM, D.A. 2011. J-Curve of Productivity and Growth: Indian Manufacturing Post-Liberalization. IMF Working Paper, No. WP/11/163.

WALLACK, J. 2003. Structural breaks in India’s macroeconomic data. Economic and Political Weekly, 38 (41), 4312-15.

WORLD BANK. 2012. World Development Indicators, World Bank.