[Dec 2007, Volume 4 Quarterly Issue] Pdf File size - The IIPM Think ...

MORE MARKETS, LESS GOVERNMENT
Figure 1. Value-Added Share of Labor Intensive Industries
Ratio of value added
1
8
6
4
Ratio of value added in above median labor intensive intensive sectors to below median sectors
7.5 8 7.5 9 9.5
CHN IND IDN KOR MYS
Sources: Authors’ calculations; UNIDO 3-digit industrial statistics database (2003).
Notes: The sample for all countries includes observations from 1981 to 1996. The classification of above and below
median labor-intensive sectors is given in Table 3. CHN stands for China, IND for India, IDN for Indonesia, KOR for
Korea, and MYS for Malaysia.
Figure 2. Value-Added Share Of Skill Intensive Industries
Ratio of value added
2.5
2
1.5
1
0.5
Ratio of value added in above median skill intensive sectors to below median sectors
7.5 8 7.5 9 9.5
CHN IND IDN KOR MYS
Sources: Authors’ calculations; UNIDO 3-digit industrial statistics database (2003).
Notes: The sample for all countries includes observations from 1981 to 1996. The classification of above and below
median skill intensive sectors is given in Table 3. CHN stands for China, IND for India, IDN for Indonesia, KOR for
Korea, and MYS for Malaysia.
group of comparator countries. India’s
share is decreasing, when that of many of
the other countries is either increasing, or
decreasing at much higher levels of income.
In Figure 2, we plot the evolution
in the relative share of output generated
in skill-intensive industries for India and
a selected group of comparator countries.
Again, it is striking that India’s share in
skill-intensive manufacturing, which was
already high in 1980 despite its lower
level of per capita income, has been increasing;
it is at levels reached by Malaysia
or Korea at much higher levels of per
capita income. These developments are
not affected by the fact that our data so
far have been limited to the registered
manufacturing sector in India. Indeed,
when we trace the evolution of labor- and
skill-intensive products in the informal
sector, we see the same pattern (Figure
3). Finally, we find that India continues to
be an outlier in 2000 on both measures of
diversification. Indeed, when we compare
the change in diversification between
1980 and 2000, we find that India is again
an outlier, implying that the pace of diversification
in India after 1980 has been
greater than that for the average country
(see Figure 4).
In sum, the evidence suggests that
many of the unique features of India’s
development that were apparent in 1981
have not changed, despite the reforms.
This continuity of trends may be explained
partly by the fact that the reforms
have not been completed. For example,
labor markets remain untouched and
education expenditure is still skewed. But
part of the explanation may well rest with
the fact that in India, the policy distortions
created organizational capabilities
and human capital that led to hysteresis
in growth paths. The growth experience
of the Indian states offers some support
to this view.
Development At The State Level
Are these patterns repeated in India’s
states and are there differences between
the fast growing and the laggard states?
We find that in the fast-growing Indian
states, the share of manufacturing has
remained constant or declined. Where
there has been an increase—in Andhra
Pradesh, Gujarat, and Haryana—it has
occurred in capital- and skill-intensive
industries (In Gujarat, the share of the
textile industry declined a lot, while that
of the petrochemical industry rose substantially;
similarly, in Andhra Pradesh
THE INDIA ECONOMY REVIEW
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