Working Paper: NBER ID: w12023
Authors: Kalpana Kochhar; Utsav Kumar; Raghuram Rajan; Arvind Subramanian; Ioannis Tokatlidis
Abstract: India seems to have followed an idiosyncratic pattern of development, certainly compared to other fast-growing Asian economies. While the emphasis on services rather than manufacturing has been widely noted, within manufacturing India has emphasized skill-intensive rather than labor-intensive manufacturing, and industries with typically higher average scale. We show that some of these distinctive patterns existed even prior to the beginning of economic reforms in the 1980s, and argue they stem from the idiosyncratic policies adopted soon after India's independence. We then look to the future, using the growth of fast-moving Indian states as a guide. Despite recent reforms that have removed some of the policy impediments that might have sent India down its distinctive path, it appears unlikely that India will revert to the pattern followed by other countries.
Keywords: India; Economic Development; Labor Market; Manufacturing; Services
JEL Codes: O14; O53
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Decentralization in policymaking (H77) | Divergent growth patterns across regions (R11) |
| Foundational policies established prior to the 1980s (P16) | Persistent trend away from labor-intensive manufacturing (O14) |
| Policies adopted post-independence (F54) | Specialization in skill-intensive industries (J24) |
| Regulatory constraints (G18) | Firm size (L25) |
| Emphasis on tertiary education + Structure of industrial policy (O25) | Unique specialization patterns in India (Z13) |
| Manufacturing output in skill-intensive sectors (L69) | Economic growth (O00) |
| Presence in labor-intensive sectors (J49) | Diminished economic growth (F69) |