This thesis tests the predictions of theoretical models of trade and economic geography
using micro-data from India. As part of a large, poor and rapidly developing country,
Indian households receive a disproportionate share of attention from development
economists. However, there remain large gaps in the understanding of its other microentities – firms.
In Chapter 1, I use detailed panel-level data on 8,253 manufacturing firms from 1990 to
2008 and demonstrate how firms that export differ from their counterparts who cater to
the domestic market. After identifying the extent to which the act of exporting drives
these differences, I provide evidence that Indian exporters performed better than nonexporters at the outset, and that exporting positively impacts further productivity
increases.
In Chapters 2, 3 and 4, I focus on how economic activity in India organises itself along
economic geography factors. Chapter 2 studies firms in the Indian informal sector, who
have largely escaped close scrutiny before. Using data from national sample surveys on
over 4 million manufacturing and services enterprises, I find that firms choose to locate
in particular districts across the country. I show that existing agglomeration within these
locations, such as that of intermediate buyers and suppliers, is driving the location
decisions of new firms. In Chapter 3, using previously inaccessible data on inward FDI,
I find that foreign investors also show evidence of clustering and that existing
agglomeration and the business environment jointly drive this behaviour. In Chapter 4, I
collect data from the Indian Patent Office and my analysis concludes that regional
innovation is largely a function of public research and development and economic
clustering.
In summary, this thesis uses new data and robust methodological approaches to provide
important economic insights into the workings of firms in India and the factors affecting
their productivity and their location decisions