Complementarity between Formal and Informal Manufacturing in India: The Role of Policies and Institutions

In this paper, we have investigated the relationship between the formal and informal manufacturing sectors in India. We find that the employment, output and the value added of the informal part of each of the manufacturing industries in the various Indian states are strongly positively correlated with the same variables for the formal part of the respective industry in these states. Our results provide support for complementarities between formal and informal manufacturing arising possibly from both agglomeration and outsourcing. We also find fairly strong support for the role of labor market flexibility in enabling this complementarity. Trade liberalization also turns out to have an important role

Trade Liberalization and Intergenerational Occupational Mobility in Urban India

Abstract In this paper, we bring two novel perspectives to the literature on trade and inequality. First, we show that the same mechanism that causes greater cross-sectional inequality, higher relative demand for skill, may also attenuate intergenerational inequality. In particular, we develop a stylized model that shows that the innovation induced by international trade causes an increase in the employment share of high-skill occupations. In turn, this allows an increasing number of sons in urban India to enter better occupations than their father. We then exploit spatial variation in exposure to trade liberalization to test our model's prediction. Our empirical results confirm that sons that live in urban districts with a greater exposure to trade liberalization have a higher probability of being in a better occupation than their father. Second, we show that increased investment in education does not facilitate upward occupational mobility in our overall sample. Instead, it only does so in districts where there has been a sufficient increase in the employment share of high-skill occupations