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

REIMAGINING INDIA
formance more related to the capabilities
of individual states and the opportunities
they create. It is possible that the laggard
states would do what it takes to utilize
their vast pools of underemployed lowcost
labor to attract investment in laborintensive
manufacturing and agri-business.
They would thereby catch up with
the leading states in India. The revival of
manufacturing growth since 2004, albeit
still concentrated in skill-intensive
and capital-intensive industries, offers
hope for this scenario.
End Notes
1
This paper is based upon Kochhar et
al. (2006)
2
Of course, other factors also affect
sectoral shares (see, for example,
Chenery and Taylor (1968)), but our
intent here is primarily to see whether
India is an outlier after controlling for
obvious factors, rather than to do an
exhaustive study of the sectoral composition
of growth per se. Also, we
report results for the largest sample of
countries, though the results are qualitatively
similar, when not specifically
noted, for a smaller cross-section restricted
to non-OECD countries.
3
Comparable cross-country data on
employment shares are not available
separately for the manufacturing sector,
only for industry (manufacturing,
mining, and core infrastructure sectors),
and services. Thus the analysis
of employment shares is conducted for
industry and services .
4
The choice of South Africa was dictated
primarily by data availability.
Our results are robust to alternative
definitions of skill intensity, including
restricting the definition to the highly
skilled category and defining skill intensity
in terms of share of remuneration
in output rather than value added.
We also checked the correlation of our
measures of skill intensity with that
compiled for the U.S. by Rajan and
Wulf (2004). It is 0.66, for the highly
skilled category, and 0.5 when skill
intensity includes highly skilled and
skilled workers.
5
It may well be, of course, that India’s
labor-intensive production was concentrated
in the unregistered sector,
for which we do not have comparable
data from other countries. To the extent
that firms in the unregistered sector
have inefficiently small scale, total
production would still be smaller and
less competitive than it could be without
the spectrum of regulations. Also,
unregistered labor-intensive production
has been falling considerably over
time, suggesting that this explanation
for India’s lack of concentration in labor-intensive
manufacturing is less
applicable today.
6
This development contradicts the
Kuznets-Chenery hypothesis. Kongsamut,
Rebelo, and Xie (2001), however,
argued based on an analysis of
123 countries over the period 1970-89
that the share of services rises with
development more than anticipated by
the Kuznets-Chenery view.
7
However, we find that industry (that
is, manufacturing, mining and core
infrastructure industries) was a significant
negative outlier in 2000, possibly
related to the much worse than
average performance of India’s infrastructure
sector.
8
In other words, most commentators
look to existing firms to see if labor
laws are a problem. But existing firms
have adapted to these laws, as suggested
both by their pattern of specialization
and their scale. The more
pertinent question is whether new
firms are kept from entering because
of the laws. The pattern of specialization
in India suggest they are.
9
Alternatively, the wages on unskilled
labor may fall, but wages in agriculture
may place a floor here.
References
• Chenery, H.B., 1960, Patterns of industrial
growth, American Economic
Review Vol. 57, 415-26, and L.J. Taylor,
1968, Development patterns:
among countries and over time, Review
of Economics and Statistics, Vol.
50, 391-416.
• Imbs, J., and R. Wacziarg, 2003, Stages
of development, The American
Economic Review, March, Vol. 93,
No. 1.
• Kochhar, Kalpana, Utsav Kumar, Raghuram
Rajan, Arvind Subramanian,
Ioannis Tokatlidis, “India’s Pattern of
Development: What Happened, What
Follows?” Journal of Monetary Economics,
Vol 53(5), July 2006
• Kongsamut, P., S. Rebelo, and D. Xie,
2001, Beyond balanced growth, IMF
Working Paper 01/85 (Washington:
International Monetary Fund).
• Visaria, L., and P. Visaria, 2003, Long
term population projections for major
states, 1991-2101, Economic and Political
Weekly, November.
• Rajan, R. and J.Wulf, 2004, Are perks
purely managerial excess? NBER
Working Paper No. 10494 (Cambridge,
Massachusetts : National Bureau of
Economic Research).
162 THE IIPM THINK TANK