Working Paper, University of Utah, Department of Economics 2009-12
Much of the theoretical and empirical research regarding the impact of policy shifts on the economies of developing countries has tended to focus on macro-level aggregates, without adequate attention to sectoral-level dynamics. In the literature where such dynamics are emphasized, the focus has primarily been on the Latin American experience, where macro-economic instability can be attributed to the impact of structural reforms on the sectoral-level dynamics of these economies. What appears to be missing from the present literature is an adequate consideration of scenarios in which seemingly positive trends in macro-level aggregates could sometimes mask problems of concentrated productivity and employment growth that exist at the sectoral level. It is this aspect that this paper seeks to address more closely. By focusing on the Indian manufacturing sector in the pre-and the post-liberalization periods, this paper shows that positive trends in aggregate productivity may sometimes hide problems of structural heterogeneity and concentrated employment growth. This in turn suggests that in developing countries with high open and disguised unemployment, sustainable growth and development requires that liberalization policies be complemented by active industrial and employment generation policies on the part of the State.