Working Paper No. 778

Is the Elephant Stepping on its Trunk? The Problem of India's Unbalanced Growth

Published: November 26, 2008Pages: 31Keywords: Industrialization; India; Industrial StructureJEL-codes: L16; O14; O25

Is the Elephant Stepping on its Trunk? The Problem of India's Unbalanced Growth Robin Douhan and Anders Nordberg


It is often assumed that recent success in the high-technology software industry will lead India's development. However, evidence suggest that basic manufacturing industry is stagnant. This paper proposes a mechanism that ties these two trends together. A big-push type of model, featuring linkages between firms, demand spill-over, and technology choice is elaborated. By imposing different cost structures on the manufacturing and high-technology industries the model describes outcome in terms of distribution between sectors. It is found that a policy which promotes a high-technology sector can have negative effects on the manufacturing industry as well as aggregate income. Directing resources towards infrastructure, on the other hand, benefits all sectors and increases aggregate income. The results from the model are found to correspond with the recent development pattern in India.

 

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Martin Ljunge, IFN, is the author of a chapter, "Trust promotes health: addressing reverse causality by studying children of immigrants", in a new book edited by Sherman Folland and Eric Nauenberg. The cutting edge of research is presented, covering the ever-expanding social capital field.

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