Scandinavian Working Papers in Economics

Working Paper Series,
Research Institute of Industrial Economics

No 778: Is the Elephant Stepping on its Trunk? The Problem of India's Unbalanced Growth

Robin Douhan and Anders Nordberg ()
Additional contact information
Robin Douhan: Research Institute of Industrial Economics (IFN), Postal: P.O. Box 55665, SE-102 15 Stockholm, Sweden
Anders Nordberg: Uppsala University, Postal: Department of Economics, P.O. Box Box 513, SE-751 20 Uppsala, Sweden

Abstract: 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.

Keywords: Industrialization; India; Industrial Structure

JEL-codes: L16; O14; O25

31 pages, November 26, 2008

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