European Parliament Library

The Size Distribution of Manufacturing Plants and Development, Siddharth Kothari

The typical size distribution of manufacturing plants in developing countries has a thick left tail compared to developed countries. The same holds across Indian states, with richer states having a much smaller share of their manufacturing employment in small plants. In this paper, I explore the hypothesis that this income-size relation arises from the fact that low income countries and states have high demand for low quality products which can be produced efficiently in small plants. I provide evidence which is consistent with this hypothesis from both the consumer and producer side. In particular, I show empirically that richer households buy higher price goods while larger plants produce higher price products (and use higher price inputs). I develop a model which matches these cross-sectional facts. The model features non-homothetic preferences with respect to quality on the consumer side. On the producer side, high quality production has higher marginal costs and requires higher fixed costs. These two features imply that high quality producers are larger on average and charge higher prices. The model can explain about forty percent of the cross-state variation in the left tail of manufacturing plants in India
Table Of Contents
Cover; Contents; 1. Introduction; 2. Empirical Results; 2.1. Richer Households Buy Higher Price Goods; 2.2. Larger Plants Produce Higher Price Goods; 2.3. Larger Plants Use Higher Price Inputs; 3. Model; 3.1. Households; 3.2. Final Goods Producers; 3.3. Intermediate Goods Producers; 3.4. Equilibrium; 4. Calibration; 4.1. Production Parameters; 4.2. Utility Parameters; 5. Results; 5.1. Cross-section of Indian States; 5.2. India Over Time; 5.3. Parameter Sensitivity: Love of Variety; 5.4. Indian vs US; 6. Inter-State Trade; 7. Conclusion; References; A. Appendix
Literary Form
non fiction
Description based upon print version of record
Physical Description
1 online resource (61 p.)
Specific Material Designation
Form Of Item

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