Informal Manufacturing Research Articles

Informal Sector in India: Migration and Poverty Implications

For assessing the role of urbanization in reducing poverty this paper based on secondary datatries to examine the nature of relationship among urbanisation, migration and informal sector employment. Findings suggest that the informal sector also tends to attract migrants as the probability to get work opportunities in this sector could be high. Further, rural and urban poverty are inter-connected as rural to urban migration and informal sector employment and other state-specific characteristics are associated, though migration and urbanisation with its spill-over effects reduce both rural and urban poverty. Also,based onthe survey data for unincorporated enterprises, the paper examinesif the unorganized or informal manufacturing, trade and services have the potentiality to grow and contribute to the realization of the inclusive growth objective. The inter-sectoral linkages do not necessarily mean that productivity and wages improve in the informal sector if the units manage to receive business contract from the formal sector enterprises. In fact, a large body of the informal sector is seen to be unconnected to the formal sector and this independent segment is on the rise over time. Finally the paper argues for the introduction of an informal sector policy which may help reduce the welfare losses to labour employed at the lower rungs.

Dualism and Structural Transformation: The Informal Manufacturing Sector in India

We identify a basic dualism within the informal manufacturing sector (IMS) in India between a ‘traditional’/non-capitalist segment, comprising family-based household enterprises that constitute the vast majority of the IMS, and a segment of ‘modern’/capitalist enterprises employing wage labour. We focus on the high-growth decade of 2000–2001 to 2010–2011 to analyse whether there has been a marked tendency of this ‘traditional’ segment to transform into a ‘modern’ segment. We construct a variable, the net accumulation fund, which indicates the ability of an enterprise to accumulate and grow, and explore its evolution, over time and across industries, for enterprises with different production structures and firm-level characteristics. We show that while, on one hand, the average ‘traditional’ enterprise has been able to economically reproduce itself rather than withering away, the dualism between the ‘traditional’/non-capitalist and the ‘modern’/capitalist segments has been reproduced and further reinforced during this period of high economic growth, raising questions about the process of economic transformation as envisaged in much of development literature.

Impact of Trade Liberalization on the Industry Wages in Pakistan (1995 – 2015)

The paper estimates the effects of trade reforms on workers' earnings in Pakistan's manufacturing sector during 1995-2015, employing data from 14 rounds of the Pakistan Labour Force Survey. OLS technique has been used for estimation and separate analysis for workers engaged in informal manufacturing activities is also undertaken. The results indicate that a tariff fall on intermediate products is associated with a rise in real earnings of workers employed in the manufacturing sector during this period, while a corresponding decline in tariffs on final goods has no effect on worker's wages. The results show that real wages of workers employed in the mainly export oriented industries of food, beverages and tobacco, textiles, apparel and leather and non-metallic mineral industries have declined over the twenty years period of trade reforms implemented in Pakistan. On the other hand, real wages are observed to have increased in the chemical and petroleum and basic metals industries.

A Causality Study between both Imports and Taxes and the Informal Manufacturing Entrepreneurs in Egypt (1980-2014)

A Causality Study between both Imports and Taxes and the Informal Manufacturing Entrepreneurs in Egypt (1980-2014)

Spatial Industrial Diversification in India: An Analysis of Unorganised Manufacturing Enterprises

Industrial diversification continues to be an important policy goal in regional planning, because of its direct positive effect on economic growth and stability. A large number of studies in India, carried out at different geographical scales namely, national level, states, and districts show that the industrial structure of India and its regions and states is characterised by high degree of specialisation rather than diversification. However, these studies are related to the organised (or registered) manufacturing sector only. Despite the fact that the unorganised manufacturing sector, also known as the informal manufacturing sector, is vast and diverse, and occupies an important role in India’s industrial sector, very few studies have attempted any systematic analysis of the structure of the unorganised enterprises, both at the national and regional levels. Therefore this paper aims to examine the industrial structure and the extent of diversification of unorganised manufacturing enterprises across the Indian states. Using data from the 51st (1994–95), 62nd (2005–06), and 67th (2010–11) “quinquennial” rounds the National Sample Survey on unorganised manufacturing enterprises, we have analysed the industrial structure of the states at two-digit industry level by employing location quotient technique, whereas the diversification coefficient has been employed to examine the degree of diversification of unorganised manufacturing enterprises in different states. We have also examined the relationship between diversification of unorganised manufacturing enterprises and level of industrial development across the states.

The Informal Apprenticeship Miracle: A Case for Mbare-Magaba Informal Industry, Zimbabwe

The economic turbulences faced by Zimbabwe in the first decade of the 21st century culminated in almost total demise of the formal industry. Concomitantly, this resulted in the emergence and proliferation of the informal industry as an alternative solution. This study explored the training strategies and approaches employed in the informal manufacturing industry. The study adopted the qualitative research paradigm to collect, present and analyse data. Findings from the study point to the efficacy of the informal apprenticeship in terms of human capital development and hence this skills training approach becomes the main trajectory to economic recovery for Zimbabwe. Keywords: Traditional apprenticeship, pedagogical approaches, informal industry

Moving out of the bottom of the economy? Constraints to firm transition in the Indian informal manufacturing sector

The predominant type of firms in developing countries is small family firms and the self-employed in the informal sector. Very few family firms make the transition to larger firms employing non-family labour. In this paper, we examine the reasons for the low presence of firms employing non-family labour in the informal sector, using a firm-level data set drawn from nationally representative repeated cross-sectional surveys of the Indian informal manufacturing sector. We find that the key constraint to firm transition is firm capabilities, followed by the level of urbanisation, access to electricity and roads, and human capital, with financial constraints playing a lesser role. JEL codes: O17, L25, D22

Technical efficiency of informal manufacturing sector enterprises: Evidence from the informal metal industry of Zimbabwe

Using data collected from a sample of 442 informal enterprises operating at eight centres in three provinces of Zimbabwe, this study evaluates technical efficiency of selected informal sector metal manufacturing enterprises. An analysis of factors that influence such efficiency levels has been conducted by way of estimating a stochastic frontier (Cobb-Douglas) production function. The analysis finds that operations in the informal metal manufacturing industry are still highly labour intensive with 75% of gross value added coming from labour contribution. The mean technical efficiency of the informal firms has been found to be 0.72, implying that there is still scope for enterprises in the informal metal manufacturing industry to increase their production by 28% if they efficiently allocate available productive inputs using available technology. The main sources and determinants of the inefficiency were also analysed and identified as comprising location of the enterprise, age of entrepreneur, level of education, age of firm and experience of firm owner, which were found to have significant influences on (in)efficiency. The study recommends that public policy should create an environment conducive to aiding entrepreneurs to operate by way of relaxing regulatory requirements for formalising the business ventures of small firms and emerging entrepreneurs.

Intra‐Metropolitan Agglomeration of Formal and Informal Manufacturing Activity: Evidence from Cali, Colombia

AbstractThis paper compares the agglomeration patterns of formal versus informal manufacturing activity within a metropolitan area of an emergent economy. We use census manufacturing enterprise‐level data for the metropolitan area of Cali for 2005 to calculate the degree of spatial agglomeration and co‐agglomeration by means of M‐functions. We also conduct spatial analysis on the distribution of formal and informal enterprises by means of kernel density mapping of selected industries. We find that although for the industrial sector as a whole informal enterprises display higher agglomeration intensity than formal enterprises of similar size, this is not the case for each individual industry. We also find that significant agglomeration of both formal and informal enterprises of similar size in the same industry does not necessarily imply that they agglomerate in the same areas of the city.

Determinants and impacts of subcontracting: evidence from India’s unorganized manufacturing sector

There are two divergent perspectives on the impact of subcontracting on firms in the informal sector. According to the benign view, formal sector firms prefer linkages with relatively modern firms in the informal sector, and subcontracting enables capital accumulation and technological improvement in the latter. According to the exploitation view, formal sector firms extract surplus from stagnant, asset-poor informal sector firms that use cheap family labour in home-based production. However, direct, firm-level evidence on the determinants and impact of subcontracting is thus far lacking in the literature. We apply a modified Heckman selection model to Indian National Sample Survey data on informal manufacturing enterprises (2005–2006). We find that home-based, relatively asset-poor, and female-owned firms are more likely to be in a subcontracting relationship. Further, we perform selectivity-corrected Oaxaca-Blinder Decomposition and calculate treatment effects to show that subcontracting benefits smaller firms, firms in industrially backward states and rural firms; it is harmful for larger firms, firms in industrially advanced states, and urban firms. Our results suggest that the effects of subcontracting are more complex than those predicted by the divergent perspectives. Policy-makers need to engage with this complexity.

Formal sector subcontracting and informal sector employment in Indian manufacturing

AbstractUsing nationally representative survey data of Indian manufacturing enterprises spanning the period 1995–2006, we analyze the link between formal sector subcontracting and informal sector employment. A novelty in our analysis is that this relationship is allowed to differ between modern and traditional segments of the informal sector. We show that formal sector subcontracting is positively related to employment growth only in the most modern segments of the informal sector. Increased subcontracting cannot explain the persistently high employment in traditional informal manufacturing activities in India. Instead, subcontracting can contribute to job creation in relatively modern segments of the informal sector.JEL codes:J21, O14, O17

Finance Constraints and Firm Transition in the Informal Sector: Evidence from Indian Manufacturing

This paper focuses on the role of finance constraints in determining the lack of transition of firms in India from very small family firms, which are the predominant type of firms in the informal sector, into larger informal firms that employ non-family labour. Using a rich firm-level data-set drawn from nationally representative surveys of the Indian informal manufacturing sector, this paper tests for the role played by finance constraints in firm transition in the informal sector at the firm and district level. There is evidence that the difficulty that firms face in accessing external finance acts as a significant constraint to small firm growth in the informal sector. Looking at data from India's districts, it is found that the financial development in a given district increases the likelihood that firms in the district will make the transition from household enterprises into non-household enterprises.

Skill in a Globalized World: Migrant Workers in the Gold Jewelry‐Making Industry in Kerala, India

The article analyzes the labor process in the gold jewelry‐making industry in Kerala, the southern state of India, particularly focusing on a single dimension “skill.” Informal manufacturing has emerged as a substantial income and employment‐generating activity in the post‐liberalization (1990s) period in the country. This was accompanied by the accentuating internal migration throughout India aided by strong social networks and commissioned agents. The gold jewelry making in Kerala like in other parts of India was organized in caste lines up to the 1960s, dominated by the Viswakarma caste. Work was carried out in response to local orders by a single craftsman, assisted by an apprentice. The burgeoning market economy and the enforcement of deregulation had profound effects on the production relations, hierarchy, and organization in the industry. The deregulation of the gold industry ushered in different kind of workers into the industry. The core of the article is an examination of the variety of skill requirements in the industry and the position and place of workers—local workers, women workers, and migrants in the industry.

Coagglomeration of formal and informal industry: evidence from India

A large and growing informal sector is a major feature of developing countries. This paper analyzes coagglomeration patterns between formal and informal manufacturing enterprises in India. It studies (a) the causes underlying these patterns and (b) the positive externalities, if any, on the entry of new firms. The analysis finds that buyer-supplier and technology linkages explain much of formal-informal coagglomeration. Also, within-industry coagglomeration matters mostly to small- and medium-sized formal firm births. Traditional measures of agglomeration remain important in explaining new industrial activity, whether in the formal or the informal sector.

Productive efficiency of the urban informal manufacturing sector in Assam

The paper analyses the productivity growth pattern in the urban informal manufacturing sector of Assam in India. The productivity of the urban informal manufacturing sector of the state is calculated and compared to the national average by using both partial and total factor productivity measures. Total factor productivity growth is taken as the difference between the growth rate in value added and a weighted sum of capital, and labour growth rates, the weights being the share of labour and capital in value added respectively. The index of efficiency of labour is computed for the state and compared to the national levels and is calculated as the difference between the actual growth rate and the desired growth rate of labour productivity. The study finds that positive total factor productivity growth of this sector both at the state as well as at the national level which is an encouraging signal.

The impacts of trade liberalization on informal labor markets: A theoretical and empirical evaluation of the Brazilian case

Following trade liberalization, several developing countries experienced a sharp increase in the share of informal manufacturing employment. In this paper, I examine the impacts of trade liberalization on the labor markets of a small open economy, in an environment in which tariffs affect firms' payroll tax compliance decisions. I demonstrate that a reduction in domestic import tariffs reduces the average formal wage and show that the direction of the effect on the share of informal employment depends on the initial labor market conditions. A cut in trading partner import tariffs decreases the share of domestic informal employment and increases the average formal wage. I confirm the model's principal findings empirically, using data from the 1989–2001 Brazilian trade liberalization episode. I find the results robust to endogeneity and self-selection concerns, which are addressed, respectively, using instrumental variable and switching regression approaches.

International factor mobility, informal interest rate and capital market imperfection: A general equilibrium analysis

This paper makes an attempt to provide a theory of determination of interest rate in the informal credit market in a less developed economy in terms of a three-sector static deterministic general equilibrium model. There are two informal sectors which obtain production loans from a monopolistic moneylender and employ labour from the informal labour market. On the other hand, the formal sector employs labour at an institutionally fixed wage rate and takes loans from the competitive formal credit market. We show that an inflow of foreign capital and/or an emigration of labour raises (lowers) the informal (formal) interest rate but lowers the competitive wage rate in the informal labour market when the informal manufacturing sector is more capital-intensive vis-à-vis the informal agricultural sector. International factor mobility, therefore, raises the degrees of distortions in both the factor markets in this case.

Economic Development, Technological Change, and Growth: Reforms and Economic Transformation in India

Swati Dhingra of London School of Economics and Political Science reviews, “Reforms and Economic Transformation in India” edited by Jagdish Bhagwati and Arvind Panagariya. The Econlit abstract of this book begins: “Nine papers explore economic policy reforms in India and consider why their impact has not been as significant as it has been in other reform-oriented economies. Papers discuss labor regulations and firm size distribution in Indian manufacturing; complementarity between formal and informal manufacturing in India—the role of policies and institutions; services growth in India—a look inside the black box; organized retailing in India—issues and outlook; selling the family silver to pay the grocer's bill?—the case of privatization in India; variety in, variety out—imported input and product scope expansion in India; reforms and the competitive environment; the postreform narrowing of inequality across castes—evidence from the states; and entrepreneurship in services and the socially disadvantaged in India. Bhagwati is University Professor of Economics and Law at Columbia University. Panagariya is Professor of Economics and Jagdish Bhagwati Professor of Indian Political Economy at Columbia University.”

Institution of State–Business Relation and Its Impact on Manufacturing Productivity Growth in India: A Post-reform Analysis

Empirical studies on total factor productivity growth (TFPG) in developing countries highlight trade openness, research and development and market structure as being the most important determinants of TFPG. The role of institutions remains overlooked in the literature on the determinants of TFPG. In this article, we look into the role of institutional quality as captured by effective state–business relationships (SBRs) in influencing TFPG, using Indian manufacturing as a case study. By SBRs we mean a set of highly institutionalized, responsive and public interactions between the state and the business sector. To compute TFPG, we use firm level data for both the formal and informal manufacturing sectors. We correct for the simultaneity bias associated with the production function approach for TFPG estimation by employing a method developed by Levinsohn and Petrin. We propose measures of effective SBRs for 15 Indian states over the period 1994–2005, and then use them in TFPG equations to estimate the effect of SBR on TFPG. The results indicate that SBR has positively affected the TFPG of Indian industry. The effect, however, is primarily for the formal sector.

Interpreting Student Views of Learning Experiences in a Contextualized Science Discourse in Kenya

AbstractDespite the centrality of the informal manufacturing sector (Jua Kali) to the Kenyan society and its richness in scientific phenomena, there is no strong link between activities in the Jua Kali and school science. And, although there has been an ongoing public discourse in Kenya to industrialize, this hope is unlikely without connecting classroom science to the real world of the Jua Kali. In view of this concern, an interpretive case study was framed to investigate Kenyan high school students' views of contextualized science learning in culturally relevant real‐world science curriculum. This article reports the analysis of Kenyan students' views of contextualized science learning and school science curriculum and instruction elicited through an interpretive case study approach employing interview methods. The analysis of interview data reveals that the participating students interviewed expressed views that: (1) acknowledged the richness of Jua Kali in scientific phenomena and embedded science; (2) indicated existence of a lack of meaningfulness and relevance in existing science curriculum and instruction model; (3) revealed experience of resonance of group and real life learning strategies modeled in the curriculum unit with their preferred learning modes; and (4) revealed their metacognitive assessment of the traditionally used and the new contextualized science modeled learning strategies. Thus, this article offers insight about the Kenyan students on their journey through the experience of contextualized science learning. © 2013 Wiley Periodicals, Inc. J Res Sci Teach 50: 381‐407, 2013