Working Papers
The Impact of Trade with China on Indian Informality
(with Yidan Jin)
In this paper, we examine the quantitative and qualitative impact of rising imports from China on the share of
informal employment in registered Indian manufacturing enterprises during 1998-2012 period. The results reveal
that, on average, rising imports negatively affected the share of contract labor in firm employment by primarily
increasing the number of permanent workers hired. Decomposing the analysis by looking at differences in labor
regulation regimes across Indian states and differences in firm size provides an in depth view of compositional
changes in the workforce of firms. We find that while firms located in either regime witnessed an increase in
the number of contract workers hired, those that were located in worker-biased labor regulation regimes saw a
decrease in permanent worker hiring while the firms located in employer-biased labor regulation regimes saw
an increase in permanent workers in their workforce. Another important finding from our analysis is that, firm
size, as measured by the number of permanent employees, is an important factor in understanding the impact
of imports on employment. The results reveal that small firms witnessed an increase in the share of contract
workers because the decline in permanent workers was much larger than the decline in contract workers. In
contrast, large firms saw an increase in both contract and permanent workers, with the increase in permanent
workers outweighing that of contract workers, hence explaining the decline in contract share seen among these
firms. We test a potential mechanism that could explain why contract labor share decreased with rising level
of imports: importing final and intermediate goods from China enabled firms to allocate their resources more
efficiently and thus increase the number of permanent workers in their workforce.
Informality and Jobless Growth in India
(with Rahul Giri)
This paper characterizes informality in output and employment in the Indian economy for the period 1978-2005,
with a special emphasis on the manufacturing sector. We first present statistics on growth and employment
for India as well as for three sectors - agriculture, industry and services- for the time period 1950-2005. We
also present data on employment in informal and formal enterprises using National Sample Survey data and
highlight how informality in both formal and informal enterprises has grown over the years. This is further
confirmed by comparing India with 40 other developing countries, where we find that the share of informal
employment in non-agricultural employment is the highest among all the countries, and Indian manufacturing
is a sector where the degree of informality is strikingly high. We document informality in Indian manufacturing
carefully by examining detailed data on value added, employment, capital-labor ratios and trade at the 3 digit
level for the manufacturing industries during the 1978-2010 period and highlight those industries in which
informality has been increasing and dominant. Importantly, the level of informality in Indian employment has
remained persistently high despite the rapid growth in GDP and GDP per capita seen since 1991, which is
when India initiated the process of liberalizing the domestic industrial policy as well as its trade policy.
(with Yidan Jin)
In this paper, we examine the quantitative and qualitative impact of rising imports from China on the share of
informal employment in registered Indian manufacturing enterprises during 1998-2012 period. The results reveal
that, on average, rising imports negatively affected the share of contract labor in firm employment by primarily
increasing the number of permanent workers hired. Decomposing the analysis by looking at differences in labor
regulation regimes across Indian states and differences in firm size provides an in depth view of compositional
changes in the workforce of firms. We find that while firms located in either regime witnessed an increase in
the number of contract workers hired, those that were located in worker-biased labor regulation regimes saw a
decrease in permanent worker hiring while the firms located in employer-biased labor regulation regimes saw
an increase in permanent workers in their workforce. Another important finding from our analysis is that, firm
size, as measured by the number of permanent employees, is an important factor in understanding the impact
of imports on employment. The results reveal that small firms witnessed an increase in the share of contract
workers because the decline in permanent workers was much larger than the decline in contract workers. In
contrast, large firms saw an increase in both contract and permanent workers, with the increase in permanent
workers outweighing that of contract workers, hence explaining the decline in contract share seen among these
firms. We test a potential mechanism that could explain why contract labor share decreased with rising level
of imports: importing final and intermediate goods from China enabled firms to allocate their resources more
efficiently and thus increase the number of permanent workers in their workforce.
Informality and Jobless Growth in India
(with Rahul Giri)
This paper characterizes informality in output and employment in the Indian economy for the period 1978-2005,
with a special emphasis on the manufacturing sector. We first present statistics on growth and employment
for India as well as for three sectors - agriculture, industry and services- for the time period 1950-2005. We
also present data on employment in informal and formal enterprises using National Sample Survey data and
highlight how informality in both formal and informal enterprises has grown over the years. This is further
confirmed by comparing India with 40 other developing countries, where we find that the share of informal
employment in non-agricultural employment is the highest among all the countries, and Indian manufacturing
is a sector where the degree of informality is strikingly high. We document informality in Indian manufacturing
carefully by examining detailed data on value added, employment, capital-labor ratios and trade at the 3 digit
level for the manufacturing industries during the 1978-2010 period and highlight those industries in which
informality has been increasing and dominant. Importantly, the level of informality in Indian employment has
remained persistently high despite the rapid growth in GDP and GDP per capita seen since 1991, which is
when India initiated the process of liberalizing the domestic industrial policy as well as its trade policy.
Published Work
Trade, Reform, and Structural Transformation in South Korea
(with Betts, C., & Giri, R) IMF Econ Rev 65, 745–791 (2017).
We develop a two country, three-sector model to quantify the effects of Korean trade policies for structural change from
1963 through 2000. The model features non-homothetic preferences, Armington trade, proportional import tariffs and
export subsidies, and is calibrated to match sectoral value added data on Korean production and trade. Korea’s tariff lib-
eralization increased imports and trade, especially agricultural imports, accelerating de-agriculturalization and intensify-
ing industrialization. Korean subsidy liberalization lowered exports and trade, especially industrial exports, attenuating
industrialization. Thus, while individually powerful agents for structural change, Korea’s tariff and subsidy reforms offset
each other. Subsidy reform dominated quantitatively; lower trade, higher agricultural and lower industrial employment
shares, and slower industrialization were observed than in a counterfactual economy with no post-1963 policy reform.
Can Total Factor Productivity Explain Value Added Growth in Services?
Journal of Development Economics, Volume 99, Issue 1, September 2012, Pgs 163-177
working paper version
This paper accounts for the rapid growth of the service sector observed in India during 1980-2005. A sectoral growth accounting exercise shows that total factor productivity (TFP) growth was the fastest for services; moreover this TFP increase was significant in accounting for the service sector value added growth. A growth model with agriculture, industry and services as three principal sectors is calibrated to Indian data using sectoral TFP growth rates. The model performs well in accounting for the evolution of value added shares and the growth rates of these shares from 1980-2005. The performance of the model improves significantly when the post 1991 increase in service sector TFP growth is accounted for. It is argued that market-based liberalization policies led to the services’ productivity increase. A modified version of the model is used to qualitatively assess the impact of a sector specific tax policy on sectoral labor and output reallocations.
(with Betts, C., & Giri, R) IMF Econ Rev 65, 745–791 (2017).
We develop a two country, three-sector model to quantify the effects of Korean trade policies for structural change from
1963 through 2000. The model features non-homothetic preferences, Armington trade, proportional import tariffs and
export subsidies, and is calibrated to match sectoral value added data on Korean production and trade. Korea’s tariff lib-
eralization increased imports and trade, especially agricultural imports, accelerating de-agriculturalization and intensify-
ing industrialization. Korean subsidy liberalization lowered exports and trade, especially industrial exports, attenuating
industrialization. Thus, while individually powerful agents for structural change, Korea’s tariff and subsidy reforms offset
each other. Subsidy reform dominated quantitatively; lower trade, higher agricultural and lower industrial employment
shares, and slower industrialization were observed than in a counterfactual economy with no post-1963 policy reform.
Can Total Factor Productivity Explain Value Added Growth in Services?
Journal of Development Economics, Volume 99, Issue 1, September 2012, Pgs 163-177
working paper version
This paper accounts for the rapid growth of the service sector observed in India during 1980-2005. A sectoral growth accounting exercise shows that total factor productivity (TFP) growth was the fastest for services; moreover this TFP increase was significant in accounting for the service sector value added growth. A growth model with agriculture, industry and services as three principal sectors is calibrated to Indian data using sectoral TFP growth rates. The model performs well in accounting for the evolution of value added shares and the growth rates of these shares from 1980-2005. The performance of the model improves significantly when the post 1991 increase in service sector TFP growth is accounted for. It is argued that market-based liberalization policies led to the services’ productivity increase. A modified version of the model is used to qualitatively assess the impact of a sector specific tax policy on sectoral labor and output reallocations.
Structural Transformation and Jobless Growth in the Indian Economy
The Oxford Handbook of the Indian Economy; ed. Oxford University Press, 2012
Historical growth patterns of contemporary advanced nations highlight the manufacturing sector to be the forerunner of economic growth. In contrast, India has witnessed a very significant role played by the service sector which accounted for a large and rapidly growing share of gross domestic product during the 1970-2007 period. The analysis in this chapter describes this atypical pattern of sectoral growth being witnessed by India. In the first part of our analysis, we present and describe empirical facts on the three principal sectors of the Indian economy- agriculture, industry and services during the sample period. Combining sectoral output, employment, education and factor income data, a growth accounting exercise is conducted which reveals that the principal factor driving growth in Indian services is attributable to rapid growth in total factor productivity (TFP) in this sector. In the second part a general equilibrium growth model with three sectors is developed and calibrated to Indian data during the 1970-2007 period. The results suggest that the model can replicate the evolution of value added shares over the sample period and can also quantitatively match the growth rates of the value added shares of these sectors. Therefore, the model is a suitable candidate to describe the process of structural transformation of the Indian economy. We further explain how the described model can be used to conduct counterfactual experiments, illustrating two examples of such exercises that elicit the importance of differential TFP growth rates in the Indian growth experience. Furthermore, an analytical discussion of how we can relax certain assumptions in the basic set up is also discussed. Some examples of how calibrated growth models such as the one described here can be employed for future research are suggested.
The Oxford Handbook of the Indian Economy; ed. Oxford University Press, 2012
Historical growth patterns of contemporary advanced nations highlight the manufacturing sector to be the forerunner of economic growth. In contrast, India has witnessed a very significant role played by the service sector which accounted for a large and rapidly growing share of gross domestic product during the 1970-2007 period. The analysis in this chapter describes this atypical pattern of sectoral growth being witnessed by India. In the first part of our analysis, we present and describe empirical facts on the three principal sectors of the Indian economy- agriculture, industry and services during the sample period. Combining sectoral output, employment, education and factor income data, a growth accounting exercise is conducted which reveals that the principal factor driving growth in Indian services is attributable to rapid growth in total factor productivity (TFP) in this sector. In the second part a general equilibrium growth model with three sectors is developed and calibrated to Indian data during the 1970-2007 period. The results suggest that the model can replicate the evolution of value added shares over the sample period and can also quantitatively match the growth rates of the value added shares of these sectors. Therefore, the model is a suitable candidate to describe the process of structural transformation of the Indian economy. We further explain how the described model can be used to conduct counterfactual experiments, illustrating two examples of such exercises that elicit the importance of differential TFP growth rates in the Indian growth experience. Furthermore, an analytical discussion of how we can relax certain assumptions in the basic set up is also discussed. Some examples of how calibrated growth models such as the one described here can be employed for future research are suggested.
The Service Sector Revolution in India: A Quantitative Analysis
The Rise of China and India: Impacts, Prospects and Implications, UNU-WIDER Studies in Development Economics and Politics, editors Palgrave Macmillan, October 2010
Following the trade liberalization in 1991, the Indian economy witnessed a high growth rate of service sector output while that of industry was relatively muted. As a result, the sectoral composition of GDP resembles that of a rich country while its per capita income still remains that of a poor country. In this paper, I identify the service sector as important in two respects: it witnesses unusually high TFP growth, as compared to the other sectors, and experiences rapid expansion in exports and imports of services, especially after liberalization. I develop a three-sector open economy growth model with two important inputs: productivity growth in each sector and trade in the industrial and services sectors. I focus on two steady state years, 1980 and 2003, and assume trade to be balanced in these two years. The model is calibrated to Indian data and can account for the levels as well as the change in composition of domestic output and in factor allocations across the sectors for the two steady states. A counterfactual experiment suggests that growth in productivity has a relatively more important role than growth in trade in accounting for the growth in the share of services value added in aggregate GDP.
The Rise of China and India: Impacts, Prospects and Implications, UNU-WIDER Studies in Development Economics and Politics, editors Palgrave Macmillan, October 2010
Following the trade liberalization in 1991, the Indian economy witnessed a high growth rate of service sector output while that of industry was relatively muted. As a result, the sectoral composition of GDP resembles that of a rich country while its per capita income still remains that of a poor country. In this paper, I identify the service sector as important in two respects: it witnesses unusually high TFP growth, as compared to the other sectors, and experiences rapid expansion in exports and imports of services, especially after liberalization. I develop a three-sector open economy growth model with two important inputs: productivity growth in each sector and trade in the industrial and services sectors. I focus on two steady state years, 1980 and 2003, and assume trade to be balanced in these two years. The model is calibrated to Indian data and can account for the levels as well as the change in composition of domestic output and in factor allocations across the sectors for the two steady states. A counterfactual experiment suggests that growth in productivity has a relatively more important role than growth in trade in accounting for the growth in the share of services value added in aggregate GDP.