2024 Theses Doctoral

Essays in Development Economics

Jiao, Dian

The primary focus of this thesis is to explore important factors affecting the manufacturing sector in developing economies, with a specific focus on India. The first two chapters of this thesis investigate how financial and land-related policy reforms can significantly impact firm dynamics and resource allocation in manufacturing industries. This contributes to our understanding of how targeted policy measures can lead to substantial changes in firm growth and innovation. Furthermore, the third chapter explores the development of contextually relevant measures to assess the scope of quality differentiation in manufacturing industries.

The first chapter, Bank Expansion, Firm Dynamics, and Structural Transformation: Evidence from India’s Policy Experiment, examines the impacts of bank expansion on firm dynamics and labor allocation. This paper focuses on a policy experiment in India designed to encourage bank expansion in ``under-banked'' districts. Empirical findings demonstrate significant growth in manufacturing firms in these districts due to eased credit access, resulting in increased capital accumulation, sales revenue, and employment. However, the expansion predominantly benefited incumbent firms, with minimal stimulation of firm entry or product innovation. The reform also induced notable labor reallocation towards manufacturing sectors, particularly in areas with lower agricultural productivity.

The second chapter, Land Constraints and Firms: Evidence from India’s Urban Land Ceiling and Regulation Act, empirically examines the effects of land constraints on resource allocation and innovation in manufacturing firms, leveraging the staggered repeal of the Urban Land Ceiling and Regulation Act (ULCRA) as a natural experiment. The ULCRA, enacted in 1976, imposed restrictions on land holdings and transfers in India. The findings suggest that the repeal of the ULCRA significantly reduced land market frictions, leading to increased landholdings and transactions among affected firms, thereby enhancing their productivity and growth. The results demonstrate that easing land constraints plays a critical role in reducing misallocation and driving economic growth in the manufacturing sector.

In the third chapter, Plants and the Scope for Quality Differentiation: An Empirical Study in India, a new proxy is introduced for determining the scope of quality differentiation in manufacturing industries, based on the slopes of Quality Engel curves. This proxy is empirically validated by establishing a positive correlation between price-plant size elasticities and the scope for quality differentiation. These findings suggest that the Engel slope may serve as a more suitable proxy for evaluating quality differentiation scopes, particularly in the context of developing countries.

In all, the thesis not only sheds light on the intricate relationship between policy measures and industrial development, but also contributes to the understanding of quality differentiation in the context of emerging economies