Essays on India's post-reform industrial performance

Abstract

This thesis presents three core chapters on aspects of India's post-reform industrial performance. The key motivations for the thesis are to validate the differential impacts of both state level policies and industrial characteristics on industrial performance, and to investigate the evolution of the industrial structure itself in the post-reforms decade. Empirical analysis in all three chapters is disaggregated at both industry and at state levels, using an unbalanced panel of 15 Indian states, 22 industries at the 2-digit level of the National Industrial Classification (NIC), and an 11-year period spanning 1992-2002. The first chapter deals with the issue of manufacturing efficiency, across both Indian states and broad industry groups. It computes, for each industry group at the 2-digit level, the relative ranking of states based on their technical efficiency scores, and how these rankings have changed over time. Three primary sets of conclusions arise. First, there is considerable variation across industries in terms of their aggregate efficiency performance. However, overall industrial performance appears to be driven more by input growth, with technical efficiency having a marginal effect at best. Second, results also show considerable regional variation in efficiency patterns, with southern and western states outperforming northern and eastern states in terms of their overall manufacturing efficiencies. Finally, detailed analysis at the state-industry level allows creation of state profiles, which summarise the relative strengths and performances of industries across those states. The second chapter investigates the impact of financial development on industrial output, and how this is conditioned by differences in state and industry characteristics. The chapter's most novel contribution comes from hypothesising and testing for operating channels though which increased financial depth impacts output. It is concluded that financial depth indirectly benefited industries by facilitating increased use of contract labour, which in turn mitigates the disruptive effects of industrial disputes. However, financial depth failed to facilitate increased capital formation, especially in the most capital-dependent industries. The negative effects of the latter outweigh the positive effects of the former, and help explain the sharp deceleration of growth in industries with moderate and high need for external financing. Finally, the chapter uses the results to make the case for comprehensive labour reforms. The third core chapter investigates aspects of technological change broad industrial categories. Specifically, it estimates the elasticities of substitution and bias of technical change for these categories, as well as their relative impacts on income shares of skilled and unskilled labour, and capital. Secondly, it also investigates the relative importance of technology and policy on labour welfare. The results clearly show that bias of technical change exerts a marginal impact at best on labour income shares. There is also conclusive evidence of capital-skill complementarity, and of the negative impact of substitution elasticities on unskilled labour. Labour welfare is therefore affected more by changes in relative factor costs than by purely technical changes. Finally, pro-labour labour regulations are found to mitigate the adverse effect of substitution elasticities on unskilled labour shares, while pro-employer regulations are found to reinforce them. -- provided by Candidate. Show more