Comment on “Geographic Concentration in Indian Manufacturing and Service Industries: Evidence from 1998 to 2013”

• Author: Marcus Noland
• DOI: http://doi.org/10.1111/aepr.12253
• Published date: 01 January 2019
• Date: 01 January 2019

Comment on “Geographic Concentration in

Indian Manufacturing and Service Industries:

Evidence from 1998 to 2013”

Marcus NOLAND†

Peterson Institute for International Economics and East-West Center

JEL codes: O14, O18, R11, R12

Accepted: 11 July 2018

The study of Amirapu et al. (2018) addresses the interesting issue of how the spatial

distribution of economic activity has evolved in India between 1998 and 2013. Their

main findings are that agglomeration in nonagricultural activities fell during this

period. That contrasts to China where agglomeration has risen. They find that in con-

trast to the United States, agglomeration in India is associated with capital-intensity of

production. Perhaps less surprisingly, they find that modern or high-technology indus-

tries tend to co-agglomerate with other modern or high-technology industries.

The determinants of the spatial distribution of economic activity are complex, but

for organizational purposes one might group the drivers into three categories:

economics, ownership, and policy.

With respect to the first, one can think of private firms operating in a policy neu-

tral environment displaying agglomeration due to two analytically distinct sources of

scale economies, at the level of the firm, and at the level of the industry. The classic

case of internal (to the firm) economies of scale is wide-bodied aircraft. But even some-

thing like the production of cigarettes exhibits returns to scale, not so much because of

scale economies in the fabrication of cigarettes per se, but rather scale in branding.

The classic example of external economies is textile production, where individual firms

may exhibit constant returns to scale in production, but total factor productivity rises as a

function of industry output due to the development of specialized subcontractors,

industry-specific educational and training programs, etc. The production of musical

instruments is another example. Those opportunities will in turn be affected by the size of

the market. Market size, in turn, will not necessarily be limited to the size of the domestic

market if international trade is allowed, and by extension may be affected by policy.

In the case of services, there are some services such as haircutting that require

proximity to the customer impeding agglomeration, while some business service pro-

viders may face incentives to agglomerate.

What is critical is the nature of production technology not its vintage or high-

technology nature. The production of many cultural products such as film or music do not

exhibit increasing returns at the level of the firm, or like the case of cigarettes, at least in

†Correspondence: Marcus Noland, Peterson Institute for International Economics and East-West

Center, 1750 Mass. Avenue NW, Washington DC 20036, USA. Email: mnoland@piie.com

© 2018 Japan Center for Economic Research 171

doi: 10.1111/aepr.12253 Asian Economic Policy Review (2019) 14, 171–172