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

Working papers:

Title:: Complementarity between Formal and Informal Manufacturing in India: The Role of Policies and Institutions
Author(s):: Sundaram, Asha
Ahsan, Reshad N.
Mitra, Devashish
Date:: 2012
Type:: Working papers
Department:: Program on Indian Economic Policies
Permanent URL:: http://hdl.handle.net/10022/AC:P:13105
Series:: Program on Indian Economic Policies Working Papers
Part Number:: 2012-1
Publisher:: School of International and Public Affairs, Columbia University
Publisher Location:: New York
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.
Subject(s):: Economics, Commerce-Business
South Asian studies