The Impact of Business Environment and Economic Geography on Plant-Level Productivity: An Analysis of Indian Industry

53 Pages Posted: 10 Aug 2005

Date Written: July 2005

Abstract

Our analysis of manufacturing plants sampled from India's major industrial centers shows large productivity gaps across cities. The gaps partly reflect differences in agglomeration economies and in market access. However, they are also explained to a greater extent by differences in the degree of labor regulation and in the severity of power shortages. This is indication that governments can help narrow regional disparities in industrial growth by fostering the "right business environment" in locations where industry might otherwise be held back by powerful forces of economic geography. There is indeed a pattern in the data whereby geographically disadvantaged cities seem to compensate partially for their natural disadvantage by having a better business environment than more geographically advantaged locations.

Keywords: Productivity, business environment, economic geography, firm location

JEL Classification: D24, L5, L6, O1, R12, R3

Suggested Citation

Lall, Somik V. and Mengistae, Taye, The Impact of Business Environment and Economic Geography on Plant-Level Productivity: An Analysis of Indian Industry (July 2005). World Bank Policy Research Working Paper No. 3664. Available at SSRN: https://ssrn.com/abstract=770952 or http://dx.doi.org/10.2139/ssrn.770952

Somik V. Lall (Contact Author)

World Bank ( email )

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

HOME PAGE: http://econ.worldbank.org/staff/slall

Taye Mengistae

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States

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