An expected outcome of economic reforms in India is enhanced pace of industrialization with manufacturing sector playing a crucial role by increasing its share in output via higher investments and increased productivity. This process of industrialization was also expected to usher in possibilities for the slow growing states to catch up with the fast growing ones. This paper assesses the extent of regional manufacturing performance in India by analyzing the trends in labour and total factor productivity for the organized manufacturing sector of 15 major Indian states. Data Envelopment Analysis is used to compute Malmquist total factor productivity index and its components. The results indicate that labour productivity diverges in the reform era and its growth and TFPG follow more or less a similar pattern. The study also finds that growth in productivity vary considerably across states and this variation in productivity growth can be explained, to a great extent, by differences in infrastructural development at the regional level.JEL ClassificationD24, O47, R11
This paper examines the income inequality implications of a ‘premature deindustrialization’ trend in middle-income countries. To identify the premature deindustrialization phase, we arrive at five conditions based on the trends in employment and value-added share of manufacture. Among these five conditions, the first and second examine the deindustrialization pattern in economies. The last three classify the identified deindustrialization phase as premature or not. We apply panel fixed-effects and bootstrap-corrected dynamic fixed-effects models to empirically examine the relationship between premature deindustrialization and income inequality. Our findings suggest that income inequality rises with premature deindustrialization if the displaced workers are absorbed into low-productivity and informal market services (especially with employment increase in non-business market services such as trade, transport, hotels, and accommodation activities). In contrast, if high-productivity non-market services are the dominant employment provider, this helps to reduce income inequality even in the presence of premature deindustrialization.
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