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REIMAGINING INDIA
Table 2. India In The Cross Section: Share Of Manufacturing And Services, Early 1980s
Share Of Output (1981) Share Of Employment (1983)
Manufacturing Services Industry Services
(1) (2) (3) (4) (5) (6) (7) (8)
Log GDP Per-capita 15.37 21.58 36.27** 27.81 26.76 22.09 66.5** 67.20**
(14.58) (13.75) (17.01) (17.79) (20.8) (20.8) (29.07) (30.07)
Log GDP Per-capita -0.73 -1.09 -1.95* -1.46 -1.17 -0.92 -3.15* -3.19*
(0.88) (0.83) (1.03) (1.08) (1.2) (1.2) (1.71) (1.76)
India Indicator 4.58*** 2.33 -6.50*** -3.55** -0.260 0.560 -7.41** -7.53**
(1.25) (1.76) (1.3) (1.61) (2.52) (2.82) (3.27) (3.63)
Control for country size No Yes No Yes No Yes No Yes
Observations 101 101 122 122 44 44 43 43
Notes: Robust standard errors are reported in parentheses.
***represents significance at 1 percent, **represents significance at 5 percent, *represents significance at 10 percent levels.
Country size is measured by area in square kilometers.
share in manufacturing seems low, especially
when compared with a number of
East Asian countries and China.
But from the work of Kuznets and
Chenery, we know that the manufacturing
share varies with the level of development,
rising and then falling off once a
country approaches a high level of income.
So we examine whether India’s
share of manufacturing is too low after
correcting for its level of income and its
square (to account for non-linearities) 2 .
Correcting only for income, India is a
positive outlier among countries in its
share of value added in manufacturing in
1981 (Table 2). Its share significantly exceeds
the norm by 4.6 percentage points
(see Table 2, column 1). After correcting
for country size, the coefficient on the
India indicator declines to 2.3 percentage
points in 1981 which is not statistically
significant (column 2). When we compare
the shares of industrial sector employment
in total employment across countries,
India is again not an outlier (Table
2, columns 5 and 6) 3 .
What were the characteristics of industry
in 1980? The first industry characteristic
we examine is labor intensity, for
which we use as a proxy the share of wages
in value added for the industry in a
country from the UNIDO database, averaged
across a broad group of developing
countries. For each country, we calculate
Compared with countries at a similar level of development
and size, in 1981 India had approximately the normal
share of output and employment in manufacturing. Output
in services was below the norm, as was employment.
the ratio of value added in industries with
above-median labor-intensity to the value
added in industries with below-median
labor-intensity. If Indian manufacturing
generated relatively more value added in
labor intensive industries in 1981, then in
a cross-country regression of this ratio
against log per capita GDP, its square,
and an indicator for India, the India indicator
should be positive and significant.
However, the coefficient is insignificant
suggesting that India does not have more
value added coming out of labor intensive
industries.
The second characteristic we examined
is skill intensity. We used data from South
Africa contains on 45 sectors and five
primary factors of production—capital
plus four categories of labor: highly
skilled, skilled, unskilled, and informal
sector. We use the share of remuneration
of the highly skilled and skilled categories
of workers in total value as a proxy
for the skill intensity of an industry. 4 If
Indian manufacturing generated relatively
less value added in skill intensive
industries in 1981, then in a cross-country
regression of this ratio against log per
capita GDP, its square, and an indicator
for India, the India indicator should be
negative and significant. What we find is
striking—even by 1981, India specialized
more than the average country in skillintensive
industries.
A third characteristic we examine is
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