A Detailed Anatomy of Factor Misallocation in India

69 Pages Posted: 20 Apr 2016 Last revised: 13 Nov 2019

See all articles by Gilles Duranton

Gilles Duranton

University of Pennsylvania - Real Estate Department

Syed Ejaz Ghani

World Bank

Arti Grover Goswami

World Bank

William Kerr

Harvard University - Entrepreneurial Management Unit

Syed Ejaz Ghani

affiliation not provided to SSRN

William Robert Kerr

affiliation not provided to SSRN

Date Written: January 28, 2016

Abstract

This paper complements the results of earlier work on factor misallocation. The paper first expands the methodology and provides two important decompositions for the main indices. The main result is that factor and output misallocation across districts is at least as important as misallocation within districts. Second, the paper provides an exploration of the service sector that complements earlier work on manufacturing. The analysis shows that labor plays a fundamental role for misallocation in services, whereas land is the determining factor in manufacturing. Third, the paper expands our earlier work on the effects of policies on misallocation by looking at a much broader range of policies, and find strong evidence of their effects on misallocation. Finally, the paper take steps towards the identification of the causal effect of misallocation on output per worker by developing a novel instrumental variable approach and a simulation approach that allows for checking the consistency of the empirical results.

Keywords: Textiles, Apparel & Leather Industry, Common Carriers Industry, General Manufacturing, Plastics & Rubber Industry, Pulp & Paper Industry, Food & Beverage Industry, Business Cycles and Stabilization Policies, Construction Industry, Transport Services, Public Finance Decentralization and Poverty Reduction, Economic Adjustment and Lending, Macro-Fiscal Policy, Taxation & Subsidies, Public Sector Economics, Disease Control & Prevention, Human Rights

Suggested Citation

Duranton, Gilles and Ghani, Ejaz and Goswami, Arti Grover and Kerr, William R. and Ghani, Syed Ejaz and Kerr, William Robert, A Detailed Anatomy of Factor Misallocation in India (January 28, 2016). World Bank Policy Research Working Paper No. 7547. Available at SSRN: https://ssrn.com/abstract=2724330

Gilles Duranton

University of Pennsylvania - Real Estate Department ( email )

Philadelphia, PA 19104-6330
United States

Ejaz Ghani (Contact Author)

World Bank ( email )

1818 H Street, N.W.
Washington, DC 20433
United States

Arti Grover Goswami

World Bank ( email )

1818 H Street NW
Washington, DC 20433
United States

William R. Kerr

Harvard University - Entrepreneurial Management Unit ( email )

Soldiers Field Road
Morgan 270C
Boston, MA 02163
United States

Syed Ejaz Ghani

affiliation not provided to SSRN

No Address Available

William Robert Kerr

affiliation not provided to SSRN

No Address Available

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