Land Market Frictions and Manufacturing in India

53 Pages Posted: 22 Oct 2019

Date Written: October 3, 2019

Abstract

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

Suggested Citation

Sood, Aradhya, Land Market Frictions and Manufacturing in India (October 3, 2019). Available at SSRN: https://ssrn.com/abstract=3468519 or http://dx.doi.org/10.2139/ssrn.3468519

Aradhya Sood (Contact Author)

University of Toronto ( email )

105 St George St
Toronto, ON M5S 3E6
Toronto, Ontario M5S 3E6
Canada

HOME PAGE: http://https://www.aradhyasood.com

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