Working Paper: NBER ID: w19942
Authors: Leslie A. Martin; Shanthi Nataraj; Ann Harrison
Abstract: An ongoing debate in employment policy is whether promoting small and medium enterprises creates more employment. Do small enterprises generate more employment growth than larger firms? We use the elimination of small-scale industry (SSI) promotion in India to address this question. For 60 years, SSI promotion in India focused on reserving certain products for manufacture by small and medium establishments. We identify the consequences for employment growth, investment, output, productivity, and wages of dismantling India’s SSI reservations. We exploit variation in the timing of de-reservation across products; our identification strategy is also robust to measuring the long-run impact of national SSI policy changes using variation in pre-treatment exposure at the district level, and to conducting placebo tests using products that were never de-reserved. Districts more exposed to de-reservation experienced higher employment and wage growth. The results suggest that promoting employment growth in the Indian case was not achieved via SSI reservation policies.
Keywords: small and medium enterprises; employment growth; India; reservation policy
JEL Codes: O12; O25; O38
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Removal of SSI reservation policies (H53) | Employment growth (J23) |
| Removal of SSI reservation policies (H53) | Wage growth (J31) |
| Removal of SSI reservation policies (H53) | Investment growth (E22) |
| Removal of SSI reservation policies (H53) | Output growth (O40) |
| Employment growth (J23) | Growth of larger establishments (L25) |
| Removal of SSI reservation policies (H53) | Shift from informal to organized employment (J46) |
| Higher exposure to dereservation (R28) | Higher employment growth (O49) |
| Higher exposure to dereservation (R28) | Higher wage growth (J31) |