India's Mysterious Manufacturing Miracle

Pete Klenow, Gunjan Sharma and Albert Bollard

No 1176, 2011 Meeting Papers from Society for Economic Dynamics

Abstract: Using data on formal manufacturing plants in India, we report a large but imprecise acceleration in productivity growth starting around the mid-1990s (e.g., 1993-2004 compared to 1980-1992). We trace the acceleration to productivity growth within large plants (200 workers or more), as opposed to reallocation across such plants. As many economists believe Indian reforms during this era improved resource allocation, the absence of a growth pickup from reallocation is surprising. Moreover, when we look across industries we fail to robustly relate productivity growth to prominent reforms such as industrial de-licensing, tariff reductions, FDI liberalization, or lifting of small-scale industry reservations. Even under a generous reading of their effects, these reforms (at least as we measure them) seem to account for less than one-quarter of overall productivity growth.

Date: 2011
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