The Effects of Economic Reforms on Manufacturing Dualism: Evidence from India

49 Pages Posted: 18 May 2011 Last revised: 2 Apr 2012

See all articles by Vinish Kathuria

Vinish Kathuria

Indian Institute of Technology (IIT), School of Management, Bombay

Rajesh Raj

Centre for Multi-Disciplinary Development Research (CMDR)

Kunal Sen

University of Manchester

Date Written: May 17, 2011

Abstract

Dualism is a pervasive feature of the manufacturing sectors of less-developed countries, with large differences in productivity between the informal and the formal sectors. Policy distortions are viewed as an important factor behind the prevalence of manufacturing dualism. We examine whether tariff reforms, industrial de-licensing and the withdrawal of reservation of products for small firms implemented since the mid-1980s have had any effects on efficiency differentials between informal and formal firms in Indian manufacturing. We find strong evidence that economic reforms have exacerbated dualism by increasing the productivity differentials between the more efficient formal firms and the less efficient informal firms. Furthermore, the reforms have widened within industry efficiency differences for both formal and informal firms, though the unequalising effect of the reforms on within industry productivity differences has been larger for formal firms.

Keywords: reforms, dualism, efficiency, informal, manufacturing, India

JEL Classification: O1, O4, L6

Suggested Citation

Kathuria, Vinish and Raj, Rajesh and Sen, Kunal, The Effects of Economic Reforms on Manufacturing Dualism: Evidence from India (May 17, 2011). Available at SSRN: https://ssrn.com/abstract=1844643 or http://dx.doi.org/10.2139/ssrn.1844643

Vinish Kathuria

Indian Institute of Technology (IIT), School of Management, Bombay ( email )

IIT Bombay, Powai
400076
India

Rajesh Raj

Centre for Multi-Disciplinary Development Research (CMDR) ( email )

Dr. B R Ambedkar Nagar
Lakamanahalli
Dharwad, 580004
India

Kunal Sen (Contact Author)

University of Manchester ( email )

Oxford Road
Manchester, N/A M13 9PL
United Kingdom

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