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Complementarity between Formal and Informal Manufacturing in India: The Role of Policies and Institutions

Author

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  • Asha Sundaram
  • Reshad Ahsan
  • Devashish Mitra

Abstract

In this paper, we have investigated the relationship between the formal and informal manufacturing sectors in India. We find that the employment, output and the value added of the informal part of each of the manufacturing industries in the various Indian states are strongly positively correlated with the same variables for the formal part of the respective industry in these states. Our results provide support for complementarities between formal and informal manufacturing arising possibly from both agglomeration and outsourcing. We also find fairly strong support for the role of labor market flexibility in enabling this complementarity. Trade liberalization also turns out to have an important role.

Suggested Citation

  • Asha Sundaram & Reshad Ahsan & Devashish Mitra, 2012. "Complementarity between Formal and Informal Manufacturing in India: The Role of Policies and Institutions," Working Papers 1116, School of International and Public Affairs, Columbia University, revised Apr 2012.
    • Handle: RePEc:ecq:wpaper:1116
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    References listed on IDEAS

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    10. Petia Topalova, 2007. "Trade Liberalization, Poverty and Inequality: Evidence from Indian Districts," NBER Chapters, in: Globalization and Poverty, pages 291-336, National Bureau of Economic Research, Inc.
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    2. Rajeev Dehejia & Arvind Panagariya, 2016. "The Link between Manufacturing Growth and Accelerated Services Growth in India," Economic Development and Cultural Change, University of Chicago Press, vol. 64(2), pages 221-264.
    3. Amit Basole & Deepankar Basu & Rajesh Bhattacharya, 2014. "Determinants and Impact of Subcontracting: Evidence from India’s Informal Manufacturing Sector," UMASS Amherst Economics Working Papers 2014-04, University of Massachusetts Amherst, Department of Economics.
    4. Nihar Shembavnekar, 2015. "Tariff Liberalisation, Labour Market Flexibility and Employment: Evidence from India," Working Paper Series 8115, Department of Economics, University of Sussex Business School.
    5. 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.
    6. Devashish Mitra, 2019. "Responses to Trade Opening: Evidence and Lessons from Asia," Working Papers id:12977, eSocialSciences.
    7. Anirban Kundu, 2020. "Impact of trade liberalisation on formal–informal interlinkages in India: does sectoral labour mobility matter?," Journal of Economic Structures, Springer;Pan-Pacific Association of Input-Output Studies (PAPAIOS), vol. 9(1), pages 1-29, December.
    8. 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.
    9. Amit Basole & Deepankar Basu & Rajesh Bhattacharya, 2014. "Determinants and Impact of Subcontracting: Evidence from India’s Informal Manufacturing Sector," Working Papers 2014_08, University of Massachusetts Boston, Economics Department.
    10. Mukherjee, Soumyatanu, 2016. "Technology, trade and ‘urban poor’ in a general equilibrium model with segmented domestic factor markets," International Review of Economics & Finance, Elsevier, vol. 45(C), pages 400-416.
    11. Subhayu Bandyopadhyay & Arnab K. Basu & Nancy H. Chau & Devashish Mitra, 2020. "Offshoring to a Developing Nation with a Dual Labor Market," Review, Federal Reserve Bank of St. Louis, vol. 102(3), pages 237-253, July.
    12. K. L. Krishna & Bishwanath Goldar & Suresh Chand Aggarwal & Deb Kusum Das & Abdul A. Erumban & Pilu Chandra Das, 2018. "Productivity Growth and Levels - A comparison of Formal and Informal Manufacturing in India," Working papers 291, Centre for Development Economics, Delhi School of Economics.
    13. Bill Gibson & Diane Flaherty, 2016. "Juridical and Functional Informality: From Theory to Practical Policy," Margin: The Journal of Applied Economic Research, National Council of Applied Economic Research, vol. 10(4), pages 409-445, November.

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    More about this item

    Keywords

    India; Formal Manufacturing; Informal Manufacturing; Policies; Institutions; employment; output; agglomeration; outsourcing; value added;
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