The Misallocation of Land and Other Factors of Production in India

Abstract

This paper quantifies the misallocation of manufacturing output and factors of production between establishments across Indian districts during 1989-2010. It first distills a number of stylized facts about misallocation in India, and demonstrates the validity of misallocation metrics by connecting them to regulatory changes in India that affected real property. With this background, the study next quantifies the implications and determinants of factor and output misallocation. Although more-productive establishments in India tend to produce more output, factors of production are grossly misallocated. A better allocation of output and factors of production is associated with greater output per worker. Misallocation of land plays a particularly important role in these challenges.

Keywords: Fiscal & Monetary Policy, Urban Economics, Private Sector Development Law, Industrial Economics, Urban Communities, Private Sector Economics, National Urban Development Policies & Strategies, Equity and Development, Employment and Shared Growth, Economic Theory & Research, Economic Growth, Consumption, City to City Alliances, Achieving Shared Growth, Regional Urban Development, Marketing, Urban Economic Development, Pro-Poor Growth