Regional Performance and Characteristics of Indian Manufacturing Industry

Abstract

Kambhampati U. and McCann P. (2007) Regional performance and characteristics of Indian manufacturing industry, Regional Studies 41, 281–294. This paper investigates the regional characteristics of Indian manufacturing industry. Its aim is to assess whether geography plays any major role in determining the performance or characteristics of Indian manufacturing firms, and in order to do this, it presents the results of cross-section regressions estimated on the basis of a balanced sample of 1607 firms across the 30 Indian states. The results suggest that firm performance and characteristics are related to many of the expected industrial organization variables. However, there is also evidence of significant region–state influences on both the performance and characteristics of Indian manufacturing industry. As such, the results demonstrate that analyses which focus solely on standard non-spatial industrial organization variables will fail to explain much of the cross-sectional variation in firm performance and characteristics. In particular, while there are no systematic simple centre–periphery variations in the Indian regional economic system, there is evidence to suggest that industrial spatial concentration, regional specialization, and regional market size play a key role in determining the performance and characteristics of Indian manufacturing industry.

Kambhampati U. et McCann P. (2007) La performance et les caractéristiques régionales de l'industrie indienne, Regional Studies 41, 281–294. Cet article cherche à examiner les caractéristiques régionales de l'industrie indienne. On cherche à évaluer si, oui ou non, la géographie joue aucun rôle primordial dans la détermination de la performance ou des caractéristiques des entreprises industrielles indiennes. Ainsi, on présente les résultats des régressions transversales, estimées à partir d'un échantillon équilibré de 1.607 entreprises à travers 30 états indiens. Les résultats laissent supposer que la performance et les caractéristiques des entreprises se rapportent à plusieurs des variables de l'organisation industrielle prévues. Cependant, tout indique que les états-régions influent à la fois sur la performance et les caractéristiques de l'industrie indienne. Par conséquent, les résultats montrent que les analyses qui ne portent que sur les variables types non géographiques de l'organisation industrielle ne réssiront à expliquer beaucoup de la variation transversale ni de la performance, ni des caractéristiques des entreprises. Tandis qu'il n'y a pas de variations simples systématiques du type centre–périphérie au sein du système économique régional indien, il est à noter que la concentration géographique industrielle, la spécialisation régionale et la taille du marché jouent un rôle primordial dans la détermination de la performance et des caractéristiques de l'industrie indienne.

Inde Régions Industrie

Kambhampati U. und McCann P. (2007) Regionale Leistung und Merkmale der produzierenden Industrie Indiens, Regional Studies 41, 281–294. In diesem Beitrag untersuchen wir die regionalen Merkmale der produzierenden Industrie Indiens. Unser Ziel ist die Untersuchung, ob die Geografie für die Leistung oder die Merkmale der produzierenden Unternehmen Indiens eine wichtige Rolle spielt. Hierfür stellen wir die Ergebnisse sektionsübergreifender Regressionen vor, die anhand einer ausgewogenen Stichprobe aus 1607 Firmen in den 30 indischen Staaten geschätzt wurden. Unsere Ergebnisse legen den Schluss nahe, dass die Leistung und Merkmale der Unternehmen mit vielen der erwarteten Variablen der industriellen Organisation zusammenhängen. Es gibt jedoch auch Anzeichen dafür, dass die Bundesstaaten einen erheblichen Einfluss auf Leistung und Merkmale des produzierenden Gewerbes in Indien ausüben. Daher zeigen unsere Ergebnisse, dass sich Analysen, die sich ausschließlich auf nicht räumliche Standardvariablen der industriellen Organisation konzentrieren, nicht zur Erklärung der meisten sektionsübergreifenden Abweichungen in der Leistung und den Merkmalen der Firmen eignen. Insbesondere liegen im regionalen Wirtschaftssystem Indiens zwar keine systematischen, einfachen Mitte-Peripherie-Abweichungen vor, doch es weist einiges darauf hin, dass die räumliche Konzentration der Industrie, die regionale Spezialisierung und die Größe des Regionalmarkts eine entscheidende Rolle für die Leistung und die Merkmale der produzierenden Industrie Indiens spielen.

Indien Regionen Produktion

Kambhampati U. y McCann P. (2007) Desempeño y características regionales de la industria manufacturera de la India, Regional Studies 41, 281–294. En este artículo investigamos las características regionales de la industria manufacturera de la India. Nuestro objetivo es evaluar si la geografía desempeña un rol importante a la hora de determinar el desempeño o las características de las empresas manufactureras de la India. Para ello presentamos los resultados de las regresiones transversales calculadas según una muestra equilibrada de 1.607 empresas en los 30 estados del país. Nuestros resultados indican que el desempeño y las características de las empresas están vinculados a muchas de las variables previstas de la organización industrial. Sin embargo, también observamos las importantes influencias estatales y regionales tanto en el desempeño como en las características de la industria manufacturera de la India. Por tanto, nuestros resultados demuestran que los análisis que se centran únicamente en las variables estándares no espaciales de la organización industrial no sirven como explicación para muchas de las variaciones transversales en el desempeño y las características de las empresas. Si bien es cierto que en el sistema económico regional de la India no hay variaciones sencillas y sistemáticas en las variaciones de centro–periferia, existen pruebas que indican que la concentración espacial industrial, la especialización regional y el tamaño del mercado regional desempeñan un papel fundamental para determinar el desempeño y las características de la industria manufacturera de la India.

India Regiones Industria manufacturera

Keywords:

• India
• Regions
• Manufacturing

Notes

1. Thus, while Arunachal Pradesh has 12.77 km of roads per 100 km² of land area, Tamil Nadu has 151.23 km and Delhi has 1406.14 km in 1991 (United Nations Development Program (UNDP), 2001). Similarly, literacy rates range from 38.48% in Bihar to 89.81% in Kerala in 1991. Finally, while the rural literacy rate was 59.21 at an All-India level in 2001 (rates for 1991 are unavailable for urban literacy), urban literacy rates were 80.06. This difference is clear across all states.

2. Analysing the differences between the industrial relations environments in 15 states, Besley and Burgess (2002) categorize six states – Andhra Pradesh, Karnataka, Kerala, Madhya Pradesh, Rajasthan and Tamil Nadu – as ‘pro-employer’ states, and Gujarat, Maharastra, Orissa and West Bengal as ‘pro-worker’ states.

3. In this framework, it is assumed that output prices are determined at the major urban market centre in a manner which is analogous to standard one-dimensional urban economic frameworks.

4. The Lerner index is given as the inverse of price elasticity. The profit share varies approximately in a linear manner with the Lerner index.

5. In the dynamic disequilibrium-adjustment agglomeration arguments associated with new economic geography models (Krugman, 1991; Fujita et al., 1999), the elasticity of substitution parameter σ reflects both a preference for variety and also a price mark-up associated with the level of economies of scale. If the major urban centres are undergoing expansion due to dynamic agglomeration characteristics of the Krugman–Fujita type, this would imply that the level of monopolistic profits per unit of capital will be noticeably higher in these urban areas than in more peripheral locations. This encourages more firms to enter the city from other regions and for the city to grow further. This urban profit mark-up will only be arbitraged away completely when the urban system stops evolving, at which point there will be an interregional equilibrium.

6. Alternatively, if these firms are monopolistic rather than competitive, then the equivalent situation here will be monopolistic competition with fixed capital entry costs, in which the level of fixed capital costs increases with proximity to the major market. The conclusions are the same as in the competitive case.

7. The data set provides no information on the variety of products produced by a firm or on coverage ratios. Earlier studies (Shanker, 1988; Siddharthan, 1981) have indicated that firms in India tend to diversify narrowly (within the same three-digit industry category), though industry houses span wider industries. Government licensing also played a role in maintaining such a narrow range of diversification. Given this, it looks likely that though firms may produce a number of different products, these products are likely to fall within the same industry group.

8. Imports and ADS are expected to affect profits with a lag, while exports and MSHARE have a contemporaneous impact. Thus, the 1989 import and ADS data for each firm are employed rather than the 1990 data in order to capture any lagged effects of capital importing on the 1990 profitability of the firm.

9. See note 8.

10. Admittedly, these dummies would also encompass the many heterogeneous characteristics of the individual states, although it is not possible for the authors to be more specific about the location characteristics of the firm because only information about the state in which each firm is located is available. Yet, there are grounds for arguing that the 25 smaller states with much smaller urban centres are likely to be much more of a homogeneous group than these five states dominated by these major dynamic urban population centres.

11. From models of urban economics, it is also not surprising that STWAGIND is highly (negatively) correlated with DISTREG, so the model performs better when one of these variables is removed. The models perform slightly better when DISTREG is included rather than STWAGIND. These are the results reported herein.

12. Which are interpreted as representing K_ij in equation (6).

13. Significant only at the 10% level and only in the model without industry dummies.

14. The regional wage variable STWAGIND, plus all the urban dummies employed in the preliminary models, were always insignificant.

15. Significant only at the 10% level and only in the model without dummies.

16. There may be an endogeneity problem with the use of the variable because LNFASAL is partly determined by the level of fixed assets and this also partly determines the profit rate. However, without detailed discounted income and investment streams consistent with a perpetual inventory model, this is unavoidable in all empirical models of this type. Fortunately, however, examination of the covariance matrix shows that the correlation between LNGFASAL and LNPROFITRATE is only 0.201 and between LNGFASAL and LNPROFITRATE is only 0.430. Moreover, re-estimation of the models without LNFASAL produces overall model results with a much lower goodness-of-fit than models with LNGFASAL included, and which, in the case of profit share model, are also largely inconsistent with any economic theory.

17. Given that the results for MSHARE in both models in Table 2 are negative and significant, while in the both models in Table 3 it is negative and insignificant, it would appear that the Demsetz (1973) critique is not relevant in this case.

18. The HHI90 coefficient estimate for the profit share model without dummies is just outside the 5% level of significance range, but is significant for the model with dummies.

19. Or alternative models (with a much lower overall goodness-of-fit) which had included the regional manufacturing wage variable or stage wage STWAGIND in place of DIST.

20. The model with industry dummies included suggests that more spatially concentrated industries tend to achieve lower rates of return on capital even though they exhibit greater profit shares, whereas more profitable industries tend to be distributed more widely across the country.