Business Environment, Clustering, and Industry Location: Evidence from Indian Cities

40 Pages Posted: 19 Aug 2005

Date Written: August 2005

Abstract

How do differences in the local business environment influence location of industry within countries? How do the benefits of a good business environment compare to those from good market access and agglomeration economies from industry clustering? We examine these questions by analyzing location decisions of individual firms. Using data from a recently completed survey of manufacturing firms in India, we find that both the local business environment and agglomeration economies significantly influence business location choices across cities. In particular, excessive regulation of labor and of other industrial activities reduces the probability of a business locating in a city. Our findings imply that in order to attract industrial activity, smaller or remoter cities need to offer even more attractive policy concessions or reforms in order to offset the effects of their relatively adverse (economic) geography. Our methodology pays special attention to the identification of agglomeration economies in the presence of unobserved sources of natural advantage.

Keywords: Business environment, agglomeration & clustering, firm location, industry

JEL Classification: L5, L6, R12, R3

Suggested Citation

Lall, Somik V. and Mengistae, Taye Alemu, Business Environment, Clustering, and Industry Location: Evidence from Indian Cities (August 2005). World Bank Policy Research Working Paper No. 3675. Available at SSRN: https://ssrn.com/abstract=780464 or http://dx.doi.org/10.2139/ssrn.780464

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 Alemu Mengistae

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
275
Abstract Views
2,000
rank
120,488
PlumX Metrics