Resource Misallocation in India: The Role of Cross-State Labor Market Reform

Adil Mohommad, Charlotte Sandoz and Piyaporn Sodsriwiboon

No 2021/051, IMF Working Papers from International Monetary Fund

Abstract: At the macro level, productivity is driven by technology and the efficiency of resource allocation, as outcomes of firms’ decision making. The relatively high level of resource misallocation in India’s formal manufacturing sector is well documented. We build on this research to further investigate the drivers of misallocation, exploiting micro-level variation across Indian states. We find that states with less rigid labor markets have lesser misallocation. We also examine the interaction of labor market rigidities with informality which is a key feature of India’s labor markets. Our results suggest that reducing labor market rigidities in states with high informality has a net positive effect on aggregate productivity.

Keywords: Misallocation; India; Firm level; Structural reforms.; WP; price distortion; product market regulation; revenue TFP; balance sheet data; exit from informality; firm TFPR (search for similar items in EconPapers)
Pages: 34
Date: 2021-02-26
New Economics Papers: this item is included in nep-dev, nep-eff and nep-iue
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.imf.org/external/pubs/cat/longres.aspx?sk=50039 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:imf:imfwpa:2021/051

Ordering information: This working paper can be ordered from
http://www.imf.org/external/pubs/pubs/ord_info.htm

Access Statistics for this paper

More papers in IMF Working Papers from International Monetary Fund International Monetary Fund, Washington, DC USA. Contact information at EDIRC.
Bibliographic data for series maintained by Akshay Modi ().