Land Market Frictions and Manufacturing in India
53 Pages Posted: 22 Oct 2019
Date Written: October 3, 2019
This paper examines how frictions in the market for land hinders the growth of manufacturing firms in developing economies. Using unique manufacturing census data from India, I document how firms acquire many small parcels of land over time. I call this the small land bite strategy. Land market frictions are the result of increased land fragmentation, poor land records and restrictive land use policies. I estimate a model of dynamic land acquisition where land adjustment costs vary spatially, by ownership and on the size of adjustment. I find private establishments pay substantially more for land aggregation than government-affiliated firms. I use the model to calculate the lost producer profits due to land frictions and analyze the effects of proposed government land pooling policies on firm growth and land misallocation.
Keywords: Land Misallocation, Fragmentation, Land Frictions, Adjustment Costs, Manufacturing, India, Production
JEL Classification: D25, R52, O14
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